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CK'X V Q>vrri rrj olkovo[aiktJ 7/ Xprj/JLaTurrtKyj. 

Aristot. Pol it I 3. 2. 

" Finis autem ultimus oeconomicas est totum bene vivere 
secundum domesticam conversationem. - ' 

St. Thorn, zd* id<* 50 3. 




OCT 2 -1931 



In writing this volume I have had chiefly in view 
the requirements of two classes of readers : first, 
of students who are making a regular study of 
political economy, and require a guide through the 
obscurity and contradictions that lie before them ; 
and secondly, of others who wish to have a simple 
outline of the whole science. For these last only 
those portions are intended which are printed in 
the larger type ; whereas the smaller type contains 
the details, illustrations, and criticisms which I 
have thought most useful for students, as well as 
the warnings which are scattered throughout the 
volume, and to which, for the sake of arousing 
the slumbering attention of the reader, I have 
prefixed the uniform title of pitfalls. And it is 
also for the sake of students that I have made 
frequent reference to the doctrines and to the new 
terminology of Professor Marshall, as one of the 
most influential of our living English economists.. 
My personal thanks are due to the Rev. Michael 
Maher, of the Society of Jesus, for his kind labours 

viii PREFACE. 

in revising the whole of the proof-sheets of this 
work, and for his many valuable suggestions and 
corrections. I wish also to acknowledge my obli- 
gations to the writings of two German Fathers of 
the same Society, namely, to Father Julius Costa- 
Rossetti's Grundlagen der Nationalokonomie for the 
intricate matters of value and price ; and to Father 
Theodore Meyer's Jus natures for the history of 
general ethics, on which the history of economics 
rests, and without which it would be unintelligible. 

November, 1891. 



Production and Consumption. 


Some Leading Economic Terms Pp. i — 17 

Nature of economic science — Five leading terms : goods, value, 
cost, revenue, capital — Remarks on terminology. 


Productive Capacities of the Earth . . . Pp. 18 — 30 

Factors of production — Seven points of physical geography — 
Distinction of intensive and extensive production — Law of dimin- 
ishing returns — Fit degree of intensity. 


Productive Capacities of Man .... Pp. 31 — 48 

Diversity of races and points of anthropology — Diversity of 
nations, and meaning of civilization — General education and moral 
dispositions — Technical education and primary, secondary, and 
higher technical schools — Costs and limits of technical education — 
Oth'jr limits to labour. 





Industrial Organization Pp. 48 — 62 

Great advantages of concerted labour — Limitations to it — Its 
result, the law of increasing returns — Drawbacks to it, especially 
misdirected production, misdirected consumption, and dishonesty. 


Industrial Progress Pp. 63 — 83 

Meaning, general history and characteristics of industrial pro- 
gress — Summary of the technical revolution from 1750 onwards — 
Estimate of the gain from it — Various drawbacks incidental to it 
— Need of compensation for man's injuries to the earth, especially 
destruction of forests. 


Industrial Locality and Dimensions . . . Pp. 84 — 100 

Grounds for variety of industrial locality — Modern urban con- 
centration — Meaning of industry, business, and large or small scale 
— Relative advantages of different scales — The technical revolution 
and forms of business. 


Family Life and Law Pp. 100 — 117 

Importance of the family, and Christian doctrine and practice 
on — Legal position of the wife regarding property — Mothers in 
factories — Laws of testation and succession — Earnings and emanci- 
pation of children — Joint-families, two kinds of, and contrast with 
instable families. 


Growth and Decay of Nations .... Pp. 118 — 139 

Birth-rate and death-rate among vigorous nations — Over-popu- 
lation averted by colonization — Historical answer to fear of an 
over-peopled world — Danger of oliganthropia — Examination of Mal- 
thusianism — Effect on population of the withholding of national 


Theory of Consumption Pp. 140 — 14G 

Technical and moral points of view — Distinction of necessaries, 
decencies, and superfluities — Illusions on wants and luxuries. 



Particulars of Consumption* .... Pp. 147 — 175 

Ten heads of consumption : I. Food, varieties of, and question 
of prevention of famine — II. Dwellings and question of Wohnungs- 
noth — III. Fuel and light — IV. Clothing and personal adornment — 
V. Furniture and washing — VI. Medical expenditure — VII. General 
education — VIII. Religious worship — IX. Recreation : (a) games, 
(b) field-sports, (:) excursions, (d) artistic recreations, (e) literary 
recreations, (/) festa, (g) music, (//) representations, (j) narcotics, 
(k) vicious recreations (legislation on gambling and on the drink 
traffic) — X. Justice. 



Trade in General Pp. 177 — 182 

Five reasons for exchange— Principle of comparative advantage 
— Limitations to advantage. 


Market Prices Pp. 183 — 198 

Explanation of markets, demand and supply, and free competi- 
tion — Analysis of private costs of production — Distinction of public 
and private costs — Analysis of value in private use and subordina- 
tion of wants — Question of final or marginal utility. 


Market J 'rices continued Pp. 199 — 209 

Grounds of the fluctuations of prices— Average market prices — 
set of market prices illustrated by diagrams — Scarcity 
market prices — Imaginary normal prices. 


i Pp. 210—225 

Injury by monopoly prices illustrat 1 Grounds for 

and bar^ainin^ — Evil of exorbitant retail pin 
ternary and legal prices Question of fair pri< 



DIFFERENCES Pp. 226 — 236 

Differences in gain from the same price — Particular causes : 
capacity, friends, accidents, trade secrets, lower wages, lower rents, 
law of increasing returns, law of diminishing returns — Capitalizing 


International Trade Pp. 237 — 250 

Reasons for distinguishing international trade — Advantages of 
and how they are shared — Balance of imports and exports — Four 
reasons for protection, and how far valid. 


Money Pp. 251 — 2C5 

Need, meaning, and kinds of money — Peculiarities in the deter- 
mination of the exchange-value of money — Evils of great changes 
in this exchange-value. 

Coinage and Tokens Pp. 266 — 282 

Distinction of standard and token currency — Proper regulation 
of the coinage — Nature of an inconvertible paper currency — Danger 
and evil of over-issue — Bimetallism. 

Commercial Credit Pp. 283 — 299 

Meaning of credit, and nature of banks — List of functions of 
banks — Cheques and clearing-houses — Bills of exchange and dis- 
counting — The foreign exchanges — Bank-notes and the Bank Act of 


Commercial Credit continued ... - Pp. 300 — 315 

Meaning of investments — Summary of advantages of commer- 
cial credit — Abuses of commercial credit — Use and abuse of the 
Stock Exchange — Nature of a commercial crisis. 


Uncommercial Credit .... Pp. 315 — 331 

Lending to public authorities — Agrarian credit — Miscellaneous 
credit — Nature and examples of usury — Usury laws — Credit asso- 
ciations and charitable lending. 





Distribution in General Pp. 333 — 342 

Distinction of wages, profits, and rents — Discussion on the 
term rent — Other divisions of the national income — Connection of 
wealth with welfare. 


Profits Pp. 343—352 

Amount of, rate of, and proportional profits — Real and nominal — 
Examination of the theory of normal profits. 


Rents Pp. 353—366 

Character, amount and rate of rents — Various current rates of 
interest — Five chief causes of average rate of interest on securities 
— Local diversities of rates of interest — Alleged decline of rate of 


Wages Pp. 367 — 380 

Industrial and non-industrial, time and piece, definite and inde- 
finite, and proportional wages — Nominal rate and real amount of 
wages — Maximum and minimum of wages — Examination of the 
doctrine of normal wages — Wages-fund theory. 


Rich and Poor Pp. 380 — 392 

Conditions of a civilized nation — Essential character of riches 
and poverty and of a serving class explained — Historical origins of 
rich and poor — How to deal with the facts. 


An "Apologia" for the rich .... Pp. 393 — 402 

Justification of inequality from the natural law — Some sophis- 
tical justifications — Office of the rich and limitations of ownership — 
Fair treatment and fair wages. 



Feudal and Servile Social Relations . . Pp. 403 — 415 

Difficulty of classifying social relations — Five chief forms 
among civilized nations — Feudal social relations explained, illus- 
trated, and judged — Servile social relations and illusions on them — 
Their irremediable evil. 


Corporative Social Relations .... Pp. 415 — 432 

Nature of corporative social relations and four specimens — 
I. The craft guilds of Christian Europe — II. The trade-unions of 
England and Boards of Conciliation — III. Joint-Stock Companies — 
Modern trusts. 


Mobile Social Relations Pp. 433 — 442 

Nature of mobile social relations — Manufacturing and mining 
England in 1840 as an example — Other examples and conclusion. 


Official Social Relations Pp. 443 — 457 

Nature of official social relations and four specimens — I. Factory 
Laws — II. Regulations under the Statute of Apprentices — III. The 
English Poor Laws— IV. The Russian Mir — Conclusion on the five 
social relations. 


Practical Reforms Pp. 458 — 470 

Nine heads of reforms for the British Isles — I. Better factory 
laws — II. Law of responsibility — III. Dwellings — IV. Professional 
capacity. — V. Humane law. of debt — VI. Small holdings — VII. 
Drink traffic — VIII. Poor Laws — IX. The Christian family and 


Prevalent Illusions Pp. 471 — 491 

Malthusianism — Individualism — Teetotalism — The Co-operative 
faith — Profit sharing — Conciliation without corporations — Socialism 
— Nationalization of the land — An eight hours' law — Compulsory 
national insurance. 





Revenue and Expenditure of Government . Pp. 493 — 503 

Character of finance — Summary of the nature of the State and 
of the functions of Government — Methods of defraying the cost of 
the functions of Government — Danger of fiscality. 


Fair Taxation Pp. 504 — 516 

Examination of nine insufficient theories of fair taxation — 
Question of the shifting or transfer of taxes — Complete theory of 
fair taxation — Technical maxims. 


Various Forms of Public Revenue . . . Pp. 517 — 531 

Fiscal domains and questions of Government agency — Imper- 
sonal taxes on property and produce, as a land-tax — Personal taxes 
on property or revenue, as an income-tax — Direct taxes on expendi- 
ture, as a house-tax — Indirect taxes on expenditure, as customs and 
excise duties — Taxes on occasions, as death duties. 


Public Debts Pp. 532 — 536 

Nature of public debts — Great advantages of public debts over 
emergency taxation — But great danger of abuse. 


Scope and Mhthod of Economic Science . . Pp. 537 — 549 

Grave disagreements on the scope of economic science — Relation 

litics, physical ( science, psychology, and the arts — 

Discussion on the separation of economics from ethics — On the 

rical School — Proper method for economic science — Use of 

mathematics and statistics. 



History of Economic Science .... Pp. 549 — 560 

Period of pagan antiquity — Patristic period — Scholastic period 
— Mercantile period — Period of economic liberalism — Relations of 
the Physiocrats, Adam Smitto, Ricardo, and J. S. Mill — Overthrow 
of economic liberalism and present anarchical period — Four chief 
modern schools of economists. 

Index Pp. 561 — 578 


Book I. 
Production and Consumption, 



Political Economy is the name commonly given 
in England to economic science, one of the moral 
or ethical sciences which have as their subject- 
matter the free actions of men. The simplest 
division of these sciences is to distinguish general 
ethics dealing with the foundations and nature of 
morality from particular ethics dealing with human 
actions in particular departments. These depart- 
ments are not very clearly distinct in the nature of 
things, but for our convenience can be divided into 
two groups according as men are looked on as 
associated for getting their living and preserving 
their race, or for keeping the peace and preserving 
justice. In the one case the family, in the other 
the State, is the most conspicuous agency; and 
thus the study of human actions in the one case is 


called economic science, in the other political science. 
The former is our concern in this manual, which is 
composed of four Books, the first, after the present 
introductory chapter on technical terms, dealing 
with the problems of production and consumption, 
or the preparation and use of economic goods ; the 
second, dealing with exchange, or the relations of 
buyers and sellers, borrowers and tenders ; the 
third, dealing with distribution, or the nature of 
property and earnings, and the relations of masters 
and servants, rich and poor ; the fourth, a supple- 
mentary Book, dealing with the general principles 
of finance (a subject more or less common to 
economics and politics) and with the scope, method, 
and history of economic science : matters which 
are usually put at the beginning of manuals, but 
which to beginners are scarcely intelligible till they 
have reached the end. 

In order to prevent confusion we must define, 
as occasion arises, certain technical terms, beginning 
in the present chapter with five leading terms and 
others subordinate to them. 

The first leading term is a good, which is what- 
ever is suitable to man's nature, whether to the 
whole or to a part, and is so far desirable. Economic 
goods are those which relate to the support, con- 
tinuance and enjoyment of man's life on earth ; 
they are divisible into two great classes : 

First, personal goods that cannot exist apart from 
definite and particular persons. Such, for example, 
are (a) skill, knowledge, diligence, honesty, docility; 
(b) honour, praise, affection, filial piety, maternal 


love ; (c) personal rights and claims, trade-marks, 

copyright, the good-will of a business, the credit of 

a merchant ; (d) personal services of attendants, 

nurses, doctors, musicians, teachers, lawyers, soldiers, 


Many of these personal goods relate quite as much to 
order and justice, as to sustenance and enjoyment ; and thus 
can be called political goods quite as well as economic. But 
this is a matter of no consequence. 

The second great class of economic goods is that 
of material goods or wealth, such namely as are 
external to man, and at the same time are corporeal; 
for example, the air and sunlight, the streams and 
the forests, pasture and meadow-land, arable and 
garden ground, mines, fisheries, factories, shops, 
roads, railways, and ships ; domestic animals and 
farm buildings, tools and implements ; bread and 
wine, garments and jewels, houses and furniture, 
churches and schools, books and works of art : all 
these are wealth. But slaves are not wealth, for 
they are persons ; nor skill, for it is not external 
to man ; nor personal services, for they cannot exist 
apart from a particular person ; nor rights and good- 
will, for they are immaterial. 

Property means economic goods that have been 
appropriated, that is, over which a person or body 
of persons claim rights of exclusive use. It is thus 
both a wider and a narrower term than wealth; 
wider, because it includes some personal goods, 
rights, for example, and good-will can be reckoned 
as property, though they are not wealth ; narrower, 
because some wealth, such as air, light, trade-winds, 
cannot be appropriated. 


But if we take the public point of view and regard all the 
inhabitants of a country as one moral person, then national 
wealth is often much the same as national property; for no 
man can have rights against himself, and again, the climate 
of a country may be said to be appropriated by a nation 
inasmuch as it can exclude foreigners from enjoying this 

Some writers use wealth as synonymous with property. 
There is no great harm in this if only they distinguish care- 
fully the public from the private point of view. Else they 
would have to admit the paradoxical statement that the eman- 
cipation of slaves is an enormous destruction of wealth, or 
the enslavement of one half of the nation by the other half 
an enormous increase of wealth. 

Pitfalls, (i) To give no definition of wealth and other 
leading terms, as though we were all clear on their meaning. 

(2) To use the term wealth or other leading terms, now in 
one sense, now in another. 

The second leading term is value, which is the 
capacity of any good to be valued, that is to be 
estimated as desirable, to have importance attached 
to it as a good. Value is not the same as utility, 
which is the capacity of any good to serve its 
purpose. Thus medicine is useful to a sick child, 
but not valuable to him, for if he can, he will throw 
it out of the window : but his toys are valuable 
to him. Thus again, those goods that are some- 
times called free goods, such as air, water, and light, 
as far as we can get as much as we want of them 
with no trouble, though most useful, are not valuable 
to us, being taken for granted, and not made objects 
of valuation. 

This is sometimes expressed by saying that difficulty of 
attainment is one of the conditions of value. 

Our definition of value avoids the two extremes, one 
making value wholly objective, either the same as utility, or 
again, the capacity to fetch a price in exchange, or the goods 
which will be given for it ; the other extreme making it wholly 
subjective, a mere mental estimate or valuation ; whereas it 


is best to take a middle course more in accordance with 
common usage, and look on value as being partly subjective, 
as far as depending on a personal estimate, and partly 
objective, as far as being a capacity of goods, and by no 
means a mere expression of the mental dispositions of each 
person making an estimate. So let value imply indeed a 
person estimating ; but also that the grounds of his estimate 
are in great measure outside him and independent of him. 

Economic value is the capacity of economic goods 
to be valued, or in other words, the capacity to be 
estimated as desirable for the support, continuance, 
or enjoyment of man's life on earth. 

For brevity, the term goods, unless the contrary 
is expressed, will in future mean economic goods, 
and value will mean economic value. Premising 
this, let us examine the different kinds of value and 
of goods. 

Value is either value in private (or home) use or 
else in social use. Value in private use exists 
wherever an individual or a family exists, and is the 
capacity of being valued for home use. It is of two 
kinds according to the use of the particular economic 
goods valued : First, if these goods are used for some 
immediate personal satisfaction, they are an object 
of enjoyment (or of consumption), and their value 
is value for enjoyment (or consumptive value). Such 
goods, for example, are food, clothing, dwelling- 
houses, furniture, pleasure-gardens, theatres ; and 
also medical service, personal attendance, beautiful 
music, domestic virtues; and the act of using such 
goods is to be called enjoyment or consumption. 

Neither of these terms is perfect, for we do DOl 

ordinarily of consuming music or enjoying the services ox the 
J-.' want a word, and enjoyment and con- 


sumption are the least misleading, especially the first ; the 
second, however, has been so commonly used in economic 
science that I give it as an alternative. Only remember, 
once used in this sense it must be used in no other ; it is 
restricted to a particular kind of human action, and we must 
no longer speak of a steam-engine consuming coal and oil,, 
or even of an ox consuming hay, but of the outlay or 
expenditure of coal and oil to make the engine work, and of 
hay to feed the ox. 

Secondly, if economic goods are used, not directly 
in present personal use, but indirectly to further some 
enjoyment in the future, they are means of production 
(or productive goods), and their value is value for 
production (or productive value). Such, for example, 
are farms, farm stock, live and dead, fisheries, mines, 
quarries, workshops, factories, shops, machinery, 
tools ; and also technical capacity and habits of 
industry ; and the act of using such goods is to be 
called production. 

The line between production and enjoyment is 
not indeed clearly marked ; but yet they are very 
different, the first existing for the sake of the second, 
and the triumph of art being to reach a maximum 
of the second with a minimum of the first. 

Observe that carrying or selling goods is just 
as much preparatory use as " making " them ; and 
that repairing goods is like " remaking " them ; 
hence all such operations are not enjoyment, but 

The distinction of objects of enjoyment and means of 
production, as far as confined to material goods, is expressed 
by Professor Sidgwick as consumer's wealth and producer's 
wealth. Professor Marshall wishes to call objects of enjoyment 
by the name of goods of the first order, and means of production 
by the name of goods of the second or higher orders, so that, for 
example, flour would be a good of the first order, a flour-mill 


a good of the second order, machinery for making a flour- 
mill a good of the third order, and so forth. But the terms 
in our text seem quite sufficient, and to explain themselves. 

Value in private use exists among isolated 
families, even in Robinson Crusoe's island. But 
man is meant for society, and among civilized 
States value in social use appears, that is, the 
capacity for being valued for use outside the circle 
of the family. 

This also is divisible according to the use to 
which the particular goods are put. If the goods 
are bestowed on others gratuitously, they are friendly 
goods (or charitable goods), and their value is value 
for gifts. But if some return is required for them, 
then they are exchangeable goods, and their value is 
value in exchange (or exchange-value). 

But here we must make yet another distinction. 
Many goods, in particular material goods (or 
wealth), can be transferred outright from one person 
to another ; and when the consideration for this is 
the receipt outright of other goods, the transaction 
is an exchange in the narrow and formal sense ; 
and the goods so used are exchangeable goods in 
the narrow and formal sense, and may be called 
merchandize (or wares). 

Using exchange in this strict sense, then undoubtedly will 
Thorntons dictum be true : " No service whatever can 
possibly be exchanged." But not so in the wide sense of 
which we are going to speak. 

When, however, on one side or on both sides 
the consideration is not an outright transfer of 
goods, but keeps the two parties still bound to each 
other in special relations, the transaction is an 


exchange only in a wide or virtual sense, and the 
goods transferred must not be called merchandize. 
Such transactions are the hiring of services (whether 
of the highest physician or the humblest farm lad), 
the letting and hiring of material goods, and all 
onerous, as distinct from gratuitous, borrowing 
and lending. All the goods, whether personal or 
material, thus dealt with are goods on hire {bona 
conductitia), and their value is value for hire. 

The notion of price follows from the notion of 
value and of exchange, and can be defined as the 
expression of exchange-value by a measure. This 
measure must be a definite quantity of some 
exchangeable good ; and this exchangeable good 
is generally one commonly used as a medium of 
exchange, and is thus, as we shall see in the next 
Book, to be called money. In civilized societies, 
moreover, money is so pre-eminently the measure 
of value that we can use the word price as synony- 
mous with price in money. 

Observe that price sometimes may not properly express 
value, and then we say it is too high or too low, above or 
below the value. But we do not say the value of a thing is too 
high or too low. Indeed it would be a mere absurdity to say 
so, if we use the definition already given of value. And what 
has been said about goods and value enables us to answer 
questions like the following: Is the mild climate of Egypt 
requiring so little use of clothing, fuel, and shelter to be 
reckoned as wealth ? Certainly it is, quite as much as the 
furs and stoves and stocks of fuel in Norway. But there is 
less value in Egypt, the climate not being made an object of 
valuation like the furs, the stoves, and the fuel. And there is 
less private property, the climate not being capable of private 
appropriation like those other goods. 

The third leading term is cost, which is the 
surrender of some good by some person— a personal 


sacrifice. There can be as many kinds therefore 
of cost as there are kinds of goods that can be 
sacrificed : rest, leisure, recreation, health, personal 
appearance, social position, domestic order, and 
comfort ; and also material goods used up, or worn, 
or damaged, or withdrawn from other uses. 

Labour is not the same as cost, for much cost, 
like the using up of fuel by an engine, is not labour; 
nor the same as human exertion, else many of our 
sports and games would have to be called labour, 
and play become work; nor the same as unpleasant- 
ness, for then many social duties would be labour, and 
many contented and happy workers at the loom or 
in the fields would be told at the close of day that 
they had done no work. Labour should rather be 
defined as human action of which the proper and 
natural purposes {finis operis) is some good which the 
operator does not receive then and there. Now, 
whether the husbandman takes joy in his ploughing 
and the craftsman in his weaving, or not ; the end 
of ploughing is to provide food and of weaving to 
provide garments. The action may be healthful 
and pleasant, and the motives of the operator (finis 
opcrantis) may turn it into a labour of love ; but it is 
still labour. 

Mark three points: 0) The line between exertion that is 
labour and oot Labour, between work and play, is often hard 
to draw ; but BO arc many lines. 

(2) The aim of the operator may determine the finis 
operis in some cases; thus the operation itself is the reward 
of the "amateur," but not of the "professional." Profi 

Marshall's definition oi labour makes 'ill depend on the aim 

of the operator. Labour, he says, is "any exertion of mind 

or body undergone parti) or wholly with ;i view to some good 

; than the pi dn< I \\\ from the work." 


But then a person with constant high motives and pious 
intentions would be labouring all the time he was not 
asleep : his conversation, his meals, his play would all be 

(3^ J°V in labour, though not removing its character of 
labour, removes a great part of the cost of labour. This 
point in all comparisons of national welfare is of great 
importance. Thus in Europe and America during the last 
hundred years, unsuitable education and the revolt against 
religion may have doubled among great populations the real 
cost at which they get their living. 

There have been immense discussions among 
economists on the classification of labour, in parti- 
cular on the distinction of productive and unproductive 
labour. This is not surprising, because labour can 
be looked on from so many points of view, namely 
as aiding in preparation or aiding in enjoyment ; 
as producing necessaries or producing luxuries ; as 
producing wealth or producing personal goods ; as 
producing permanent or ephemeral goods; as bring- 
ing a benefit to society, or no benefit, or an injury. 
And these points of view have been mixed up. 
What then is the best course to take ? The word 
unproductive is invidious and should only be used 
in a bad sense, to mean labour of which the result 
is useless or mischievous ; and then it is better to 
say useless or mischievous. So, too, it is better not 
to speak of productive labour, all rational labour 
being in one sense productive ; the labour of 
domestic servants, for example, being highly pro- 
ductive of certain economic goods. Rather let us 
make a different distinction and divide labour into 
industrial and non-industrial according as its end is 
or is not the preparation of material goods (or the 
production of wealth). To draw an exact line 


indeed where preparation ends and enjoyment 
begins is a hard task, but not necessary. It is quite 
easy and profitable to place in the one division or 
the other the vast majority of those who labour ; to 
place in the one all engaged in agriculture, mining, 
manufactures, commerce, and the building trades ; 
in the other the labours of clergy and statesmen, 
of the military and civil services, of lawyers and 
doctors, workers in science and literature, actors 
and musicians. 

The chief difficulties lie in three departments of labour, 
namely, transport, teaching, and the work usually done 
among ourselves by domestic servants. But all three can be 
dealt with accurately enough for the purpose. Thus all 
engaged on the railways, roads, rivers, in the post-office and 
telegraph service, can be reckoned industrial, if to any con- 
siderable degree they conduct business traffic as distinct 
from pleasure traffic ; all teachers can be reckoned as non- 
industrial, unless they are mainly employed in giving technical 
education ; and domestics can be put in the industrial class 
if their chief work is on things, but in the non-industrial if 
their chief work is in the shape of personal ministrations. 

The fourth leading term is revenue or income 
which has a wide and a narrow sense. The wide 
sense known as gross or nominal revenue, is the total 
wealth added to the property of a given person in 
a given time from whatever source ; in other words, 
the sum of his receipts whether in the shape of 
produce of his own or his workmen's labour in field 
or workshop, or in the shape of proceeds of the sale 
of his goods, or in the shape of wages for work 
done, or in the shape of rents from property which 
others hire from him. 

The narrow sense known as net or real revenue is 
tli<- nominal ie minus the following items: 


(a) Destruction, damage, or loss by fire or other 
accident, by violence, by thieves, by bad debtors. 

(b) Using up of materials in production, and wear 
and tear of machinery and buildings, (c) All sums 
spent on purchases of goods that are to serve the 
purchaser not as objects of enjoyment, but as means 
of getting a revenue, (d) All sums spent on hire of 
goods that are in like manner to serve as means 
of getting a revenue, (e) All payments for labour 
that in like manner are to serve as means of getting 
a revenue. 

These five items for short can be called damage, 
wear, industrial purchases, industrial hire of goods, 
industrial hire of labour. 

But we must in no way include among these 
items the wages of servants whom a man employs 
for his pleasure ; for this is a mode of spending net 
revenue, not a deduction before the net revenue 
can be reckoned up. Nor again must we include 
payments for the purchase or hire of goods that are 
to serve a man as objects of enjoyment ; for this 
also is a mode of spending revenue and not a 
deduction before it can be reckoned up. 

Although in the main the foregoing distinction of gross 
and net revenue corresponds with the ordinary practice in 
private life, it is not so in some particulars. Thus taxes are 
often with great convenience treated as one of the deductions 
to be made before net revenue can be reckoned, and not as 
a mode of spending that revenue. Sometimes legal charges 
are deducted in the same way. On the other hand, expenditure 
on technical education is often treated like that on general 
education and not deducted before reckoning up net revenue. 
Again, the rent of a small home-farm attached to a dwelling- 
house, and the wages of the man who does the work on it, 
are not distinguished from the rent of the dwelling-house and 


the wages of the domestic servants, and all alike treated as a 
way of spending net revenue, not a deduction before reckoning 
it up. There is in consequence, when we compare revenues, 
great danger of attributing to one man too small and to 
another too great a command over the conveniences and 
necessaries of life. We must always look, therefore, at the 
particular circumstances of each case. 

Professor Marshall has proposed to extend the notion of 
income to include all new economic goods, in particular, the 
continued benefit from durable objects of enjoyment, as a 
house and furniture ; and there is much to be said for this. 
Thus if a man, with £1,000 income from four per cent, stock, 
spent previously £100 a year on a repairing lease of his 
house, and now sells £2,500 worth of stock, so that his 
income is only £900, and with the proceeds of the sale buys 
his house, he has nominally £100 a year less income, but 
yet is in practically the same financial position as before. 
Nevertheless, if we amend our definition to meet this case, 
we shall still find that the same net income means some- 
thing very different according to the different circumstances 
of the receivers, and is thus no sure test of their financial 
position. It seems better, therefore, to emphasize this fact, 
and then to keep to the simpler view and common meaning 
of income being an addition to a man's property in a given 
time ; and thus in the case before us, to say that by purchasing 
the hired house the man lessened the permanent sources of 
his income, wisely perhaps, but still lessened them. 

A different difficulty is to know how much is to be deducted 
when the same material object serves both as a means of 
getting a revenue and of enjoying it, for example, how much 
of what a medical man spends on house and carriage, a 
postman on boots, an attendant at a fashionable shop on 
tidy clothes, is to be deducted in order to reckon their net 
revenue. (Marshall.) 

The fifth leading term is capital, which is that 
part of a person's property which he employs for 
the sake of revenue ; the other part of his property 
being what is used or reserved for enjoyment or not 
used at all. The essence then of capital is to serve 
as a source of revenue to the owner or holder of it, 
and thus it is far from being the same as means ol 
production, though often confused with them. All 


means of production indeed, as far as they are 
appropriated, are capital, for example, farm land, 
farm stock, factories, materials of manufactures ; 
but there is besides much capital composed of 
objects of enjoyment, such as the wages of all kinds 
of workmen, these wages being generally objects of 
enjoyment or money to buy them with ; or again, 
objects of enjoyment let on hire, dwelling-houses, 
furniture, pleasure-gardens, horses, carriages, all of 
which serve as capital, not indeed to those who 
hire them, but to those who let them. And all 
stocks of finished goods ready to be sold for enjoy- 
ment, are undoubtedly to be called part of the 
capital of the tradesman, and all property used by 
hotel keepers and theatrical managers in their 
business. Notice that even railways and steam- 
ships and the apparatus of the telegraph and postal 
system, although capital to the owners, are not 
simply means of production like a ploughed field or 
a spinning-wheel, but are used for pleasure traffic as 
well as business traffic, and thus in part are objects 
of enjoyment. 

Many divisions can be made of capital. 

(i) According as it fulfils the same function more 
than once or only once, we distinguish fixed from 
circulating capital. Thus machinery, arable land, a 
building, a milch cow, are all fixed capital ; while 
the material and fuel used in manufactures, and 
finished goods ready for sale, are circulating. 

(2) According as it is composed of goods that 
can or cannot be shifted from one place to another, 
we distinguish moveable from immoveable capital. 


Though this is often the same as the distinction of fixed 
and circulating capital, it is not so always. Thus a trades- 
man's horse and cart are part of his fixed capital, but as 

(3) According as it can or cannot be easily 
changed from one purpose to another, we distinguish 
non-specialized from specialized capital. Thus wages, 
most materials, and some tools are capable of being 
easily diverted from one purpose to another ; but 
railways, docks, most buildings, and much machinery 
cannot be easily diverted. 

(4) According as it is composed of means of 
production or of objects of enjoyment, we distinguish 
productive from consumptive capital. 

This is not quite the same as Professor Sidgwick's dis- 
tinction of the terms producer's and consumer's capital. He 
takes capital to mean, not the source of revenue to a 
particular person, but a particular aspect of property as 
intermediate between labour and enjoyment, and then gives 
the title of consumer's capital to durable objects of enjoy- 
ment, like houses, furniture, and works of art. But if we 
adopt the view of capital being a source of revenue, then 
" consumer's capital" is a contradiction in terms, and objects 
of enjoyment can only be capital to those who transfer them 
to others to enjoy, not to those who enjoy them. 

Nor again is the distinction in the text the same as 
Professor Marshall's of auxiliary capital and consumption 
capital. He gives to objects of enjoyment the title of capital, 
even when they are in the hands of the consumer, provided 
that their consumption adds to the efficiency of production ; 
and he excludes land from auxiliary capital. He only uses 
the distinction of auxiliary and consumption capital in regard 
to what he calls social as opposed to individual capital, and 
thus quits the simpler point of view which looks on capital as 
a definite body of goods under the management of a definite 
person and used by him for a definite purpose. 

Observe that there is a certain analogy between capital 
and the faculties of a skilled worker, whether professional or 
manual, for both are sources of revenue. But then the skill 
of a doctor or an artisan is not in any ordinary sense his 
property, and to speak of it as personal capital seems more 


misleading than instructive. Only so far as the possessors 
of such capacities are themselves the property of any one, as 
in the case of slaves, can the capacities be called capital in 
the simple sense. But the goods employed by a man or 
his family in acquiring technical aptitudes are to be called 
capital, being employed not for enjoyment, but for revenue, 
revenue, it is true, in the future and uncertain, but still 

Many writers exclude land from capital; but it is difficult 
to do this without giving a strained and unprofitable definition 
of capital ; and, as we shall see at the beginning of the Third 
Book, this separation of land and capital is likely to lead us 
into mistakes. 

As a comment on this chapter, let two points be 
kept in mind. First, although in economic science 
it is important to give precise terms and definitions, 
and to keep to them when given, the particular 
terms and definitions adopted are matters in general 
of no great consequence. For things and realities, 
not words and names, are the object of the science. 
Whether, indeed, we look upon Economics as an 
ethical science or not, and if so, what are the 
ethical principles we follow, are matters of the 
greatest consequence ; but not the particular defini- 
tions we adopt of wealth, or value, or capital. 

Pit/alls. To attach undue importance to terminology, 
violently dispute about mere words, waste much ingenuity 
and time in making all sorts of verbal distinctions, and imagine 
with each fresh devised definition of capital, or wealth, or 
what not, that some grand scientific discovery has been made. 
Much sterile disputation has been attributed to the declining 
scholastic philosophy of the fourteenth and fifteenth centuries: 
assuredly the disputations of "Political Economy" in the 
nineteenth century have been ten times more prolix and more 

Secondly, let us not attempt a greater precision 
than the nature of the subject admits. Many 
economic goods can indeed be measured according 


to their number, weight, or dimensions, sometimes 
even acording to their muscular or mechanical force. 
But such physical measurements are often inapplic- 
able, while the utility of goods and their value for 
private use, inasmuch as differing with each person, 
cannot be measured with any accuracy. Exchange- 
value indeed is different, and the means of measur- 
ing it we shall have to examine in discussing prices 
in the Second Book. But a multitude of goods have 
no price ; and for those which have, it is often an 
imperfect measure. 

Pitfall. To endeavour to put into figures the realities of 
domestic and national life, and having given, for example, 
statistics of wages or of other revenues, of imports and 
exports, of tea and sugar consumed per head, to think that 
such figures are a true index of misery or happiness, virtue 
and vice, intellectual culture, moral dispositions, piety and 
contentment, industrial harmony, domestic peace. 



From the definition of production and consumption 
it is evident that the requisites, factors or elements 
of both, are in the first instance two, and two only, 
things to be used and persons to use them, the earth 
on the one hand and man on the other. Let us 
first look at the earth and its capacities to furnish 
economic goods ; then at man, his capacities as a 
producer and position as a consumer. 

Very frequently we find co-ordinated three factors of pro- 
duction, land, labour, and capital. And by land, sometimes 
called nature, is generally meant all natural forces as we find 
them ; by capital, all improvements and appliances. But 
this arrangement has weak points. If copper, for example, 
as " nature " provided it in the mine, is to be distinguished 
from copper improved into a boiler, why not distinguish 
a raw unskilled youth from an improved artisan ? And 
"land "once tilled, manured, drained, enclosed, and rendered 
accessible, ought to pass into the category of capital, 
and stay there. Besides it is hopeless to try to distin- 
guish the work of nature, inherent powers of the soil, and 
natural forces from the work of man. "Nature" is no less 
requisite for the express train to run from London to Liver- 
pool than for the wheat crop to be raised on the plains of 
Kherson and Dakota ; and to try to calculate how much 
of the result is due to man and how much to nature, is a task 
as idle and impossible in the one case as in the other. It is 
best then not to complicate the simple distinction of the 
earth and man, or the distinction within a narrower circle 
of each country and its people. 


Seven points of physical geography are of im- 
portance for the economist. 

I. The character of the different parts of the 
earth as a dwelling-place for man. The differences 
appear so great that we may wonder how some 
regions can be inhabited at all, and why the popula- 
tion of the world is not concentrated where the 
climate is most pleasant. But, in fact, whether a 
place of residence is to be called pleasant or healthy 
depends on many complicated causes ; man has an 
almost unlimited power of adapting himself to his 
surroundings, and often a great power of modifying 
them ; and we can say that if out of the fifty-one 
million square miles of dry land we except some 
three or four million of frozen regions in Northern 
Asia and North America, almost all the remainder 
either is or can be made healthy and habitable. 

II. Facilities of communication. Compare im- 
penetrable tropical forests, or marshes, or mountains, 
or waterless deserts blocking communications, with 
the level grassy plains of the prairies and pampas, 
navigable rivers and seas, or the whole country 
becoming, like Northern Asia in winter, one smooth 
road of frozen snow. Much of the world's history, 
political and economic, has depended on the means 
of communication ; only observe that since man's 
art can do so much, the point is not so much what 
communications a country offers ready-made, as 
what facilities it offers for making them. And 
this will vary according to the state of the arts 
of production. Thus at one time to be near navig- 
able rivers, tidal estuaries, and a coast with good 


natural harbours and favourable winds were matters 
of prime importance; but now to be accessible to 
ocean steamers from without, and to be easily 
covered within by a network of railways. 

III. Fertility of land, that is, its capacity to 
support plants and animals useful to man. In this 
capacity we see the greatest variety from the frozen 
marshes of Siberia or the salt desert of Gobi, on the 
one hand, to the black earth zone of South Russia 
or the wheat lands of California. But here again 
the term fertile is relative to the inhabitants, and, 
ceteris paribus, will vary according to the animals 
and plants they know how to use, and then according 
to their agricultural skill. This skill, indeed, can do 
little for some of the conditions of fertility such as 
sunshine and rainfall ; but irrigation or drainage 
may make up in great measure for defect or 
excess of rainfall ; the mechanical conditions of 
fertility may be marvellously improved by tillage, 
and the chemical conditions by all kinds of manur- 
ing ; while there is an immense field for human 
agency in the domestication of animals and plants 
and in giving them care and shelter. Then, apart 
from knowledge and skill, the application of con- 
certed labour, where there is an increase of popula- 
tion, may enable land to be cultivated that was too 
heavy a task for scattered agriculturists, but yet 
when cultivated yields the richest return. This has 
been seen in the settlement of the United States, 
where the light-soiled uplands were the best at first 
and the heavy-soiled low-lying ground the best 
afterwards. Finally, fertility is relative to the 


fashions of consumption. Land admirable for dairy 
farming is of little use, and thus of little fertility, 
to the Chinese who never touch milk or any pre- 
paration from it. On the other hand, land suitable 
for rice, which is their favourite food, is to be 
reckoned very fertile for them. But if China were 
inhabited by Englishmen, the swampy land suitable 
for rice would by comparison become barren, and 
the land suitable for dairy farming would become 
fertile, though the physical character of the soil 
remained precisely the same. 

IV. Stock of minerals, in the wide sense, 
whether used principally for fuel, as coal, petroleum, 
and peat ; or for food, as salt ; or for adornment 
or money, as jewels and the precious metals ; or for 
manure, as nitrate ; or for building, as brick-earth, 
stone, and slate ; or for machines and implements, 
as iron, tin, lead, and copper; or for making pottery 
and glass, as certain clays and sands. 

V. Supply of natural forces, principally the force 
of air and water in motion, used for sailing vessels, 
wind-mills, and water-mills. The importance of these 
forces (and the same is to be said of minerals) will 
vary according to the state of the industrial arts. 
Curiously enough the progress of these arts has in 
the nineteenth century conspicuously diminished 
the importance of natural forces by the substitution 
of steam, and conspicuously raised the importance 
of certain minerals, notably coal and iron. But 
fresh inventions may reverse this change, and the 
crowded coal-fields revert to rural solitude. 

VI. Fertility of the water, that is, the capacity 


of the rivers, seas, and lakes to support plants and 
animals useful to man. Here the arts have made 
by comparison little progress, and Europe is behind 
Eastern Asia in fish-breeding and the use of aquatic 
plants. Indeed the Europeans treat the water, in 
its food -bearing capacity, much in the way that 
savages treat the land, as a hunting-ground. But 
this may be changed ; every creek and bay may be 
regularly cropped with domesticated diatoms, and 
the nations be as eager to partition the vast field 
of floating plants in the Atlantic as they now are to 
partition the African terra firma. 

VII. The seventh point is negative, how far each 
country is free from destructive agencies. Buildings, 
implements, books, and adornments decay very fast 
in some places, notably where great cold or great 
heat is combined with great moisture, and in some 
places, as in Egypt, very slowly. Sudden destruction 
by the elements is also much more likely in some 
regions than others, namely by flood, fire, hail, 
earthquake, eruption, avalanche, hurricane ; from 
all of which the British Isles are peculiarly free. 
Then the liability to failure of crops by drought 
or wet season, and the danger of disease among 
animals and plants, the presence of noxious animals, 
vermin and insects, vary in different places, and 
vary also, like the rest of destructive agencies, in 
being able under some circumstances to be removed 
or provided against, and in other circumstances 

The conclusion from physical geography is that 
it is a hard task to strike the balance of advantages 


between different countries. But this is of less 
consequence, because the point of interest for 
economic science is not so much what are the 
physical characteristics of each country, but whether, 
given these characteristics, the life of the people is 
in harmony with them ; whether, for example, in 
the damp and cold climate of the British Isles the 
houses are warm and dry ; whether in India the 
salt, which is there so needful for man and beast, 
is cheap and abundant ; whether the social institu- 
tions of Palestine favour the abundance of wells and 
water: whether in Siberia, where agriculture can 
only be practised four months in the year, there is 
provision for profitable employment during the 
remaining eight months. And we may conclude 
that almost every region can be the seat of a happy 
and prosperous nation, and is meant to be : meant 
to be a beloved fatherland for us to adorn and 
ennoble, turning to good account the physical 
characteristics, whatever they may be, of the land, 
adapting to them as far as needful our life and 
institutions, and making them a source of inspira- 
tion for literature and art. 

The resources of the earth in general, and of each 
land in particular, are obviously limited : what is 
not obvious is the character and the consequence 
of the limitation ; on which there has been much 
controversy and many illusions. But if we dis- 
tinguish carefully five leading facts we ought to 
fail into no confusion. These facts are first the 
diminishing return to industry under some circum- 
stances, and secondly, the increasing return under 


other circumstances ; thirdly, the dispersion of man 
over the earth ; fourthly, the progress of the in- 
dustrial arts; and fifthly, the injury which the 
productive powers of the earth have received, 
chiefly by man's handiwork. These five facts 
are all closely connected with one another, being 
mutually causes and effects. 

Let us first explain a new technical term. We 
have seen how production implies cost, a sacrifice 
of labour and of material goods. Now if, while 
man's productive powers remain the same, he 
wishes to increase the results of production within 
any given portion of space and given period of 
time, this can only be done by an increase of cost. 
Let the term intensity of production express the cost 
incurred within a given space and time in any 
industry in a given state of the arts of production. 
Costs, indeed, including labour and personal losses, 
as well as material goods sacrificed, cannot be 
measured accurately, but yet sufficiently near to 
allow profitable comparisons. To increase them 
under the conditions stated is to intensify produc- 
tion, to lessen them is to extensify production ; if 
they are great, production is intensive, if they are 
small, extensive. 

These terms (adopted by Professor Marshall) seem best, 
implying no praise or blame and being practically identical 
in French and German. Strained and slack production, or 
elaborate and simple production, or production at high and 
at low pressure might be used as substitutes. The only word 
in common use is confined to agriculture, namely, high farming ', 
meaning intensive farming. 

Some economists, Professor Marshall among them, dealing 
with intensity in agriculture, employ the phrase, dose of capital 


and labour, to express the costs on a given area of land. But 
as the costs cannot be precisely measured at any time, still 
less in any comparison of distant places and times, it seems 
a pity to use a word that implies the accurate and uniform 
measurements of the apothecary. 

Examples will make clear the meaning of inten- 
sity. Compare the annual cost incurred in England 
in raising the produce from ten acres of market- 
garden, ten acres of arable land, ten acres of meadow, 
ten acres of pasture, ten acres of rough woodland, 
and see how in each case the cultivation is less 
intensive than in the previous one. Again, take two 
farms, one in the best part of the Scotch lowlands, 
the other in Manitoba, and see how the average 
outlay per acre upon fences, manure, farm-buildings, 
implements, and labour is much more in the one 
case than in the other. There is great intensity of 
cultivation on the Scotch farm and little on the 
Canadian. Similarly, cattle-breeding can be con- 
ducted in a rough and ready way, or with elaborate 
care for each individual beast ; fisheries may be 
worked by few men with rude appliances, or by 
many men with costly boats and nets; mines maybe 
worked easily just at the surface, or with elaborate 
shafts, galleries, and pumps. The breeding, the 
fishing, the mining is conducted in the one case 
with extensity, in the other with intensity. The 
same distinction also applies in manufactures, trans- 
port, and commerce. Immense numbers of work- 
people, elaborate machinery, and costly buildings 
may be employed on a given manufacture at a given 
place, as at Oldham on the cotton manufacture, 
and again employed in a single manufactory, like 


the great brewery of the firm of Guiness at Dublin ; 
or, on the other hand, the numbers may be few, 
the contrivances simple ; and then manufactures 
would not be intensive, but extensive. Vast outlay 
may be incurred in putting two places in com- 
munication, as London and Manchester connected 
by three distinct lines of railway, with double 
tracks, and a constant and rapid service of trains. 
If there was only one railway with fewer and slower 
trains, transport would be carried on with less 
intensity, and with still less if there was only a road 
between the two towns, or only a horse-track, or 
only a foot-path. And in commerce compare what 
is laid out in a rural American store, only open at 
certain hours of the day, with the outlay on magni- 
ficently decorated show-rooms and a multitude of 
shop assistants in a fashionable shop in London or 
New York. 

If we have grasped the meaning of intensity in 
production, we shall easily grasp the principle often 
known as the law of diminishing returns, that after 
a certain point increasing intensity of production 
yields a proportionately decreasing return. In 
other words, in a given state of the arts of produc- 
tion, if we go on increasing the costs within a given 
space and time in any industry, we shall reach a 
point where the returns in proportion to the costs 
begin to grow less. Every one in any kind of busi- 
ness must be aware of this. For example, to lay 
out a large sum on farm-buildings, drainage or 
irrigation, manure and labour may often give a 
return more than proportionate to the cost ; but 


then further buildings, manure, and labour would 
probably yield much less in proportion ; and to go 
on still further with such outlay would be to turn 
all profit into loss. So too in fishing, if, for example, 
where every ten pounds is now laid out on the 
fisheries in the West of Ireland, fifty pounds were 
laid out, the value of the fish caught would pro- 
bably be not merely five times, but ten times as 
great as at present. But then, if the outlay were 
again quintupled, the return would probably not 
again increase in a proportion greater than the 
outlay ; nay, it would almost certainly increase less. 
It is just the same in manufactures. Increasing 
outlay often gives up to a certain point more than 
proportionate return. To set up a well-built cotton 
mill with first-class machinery will probably enable 
the owner to make more than twice the profits of a 
mill built with half the expense. But had he spent 
ten times more, he would certainly not get ten 
times the profits. 

This principle of diminishing returns once apprehended 
cannot be denied ; otherwise all London could be fed with 
wheat from the Temple Gardens, and the entire exports of 
cotton goods from Great Britain could be made at one single 
factory. But there are complications, or the principle could 
never have been called in question. For though always, 
under any given circumstances, there must be a turning- 
point when returns become less in proportion, the turning- 
point may be altered by alterations in the circumstances. In 
the chapter after the next we shall examine the principle of 
increasing returns possible with increasing population by 
the greater concert of labour. Knough here to notice how 
increasing population acts in two ways, requiring ever 
increasing intensity of production, and hence approaching 
or passing the point where the proportional returns e,row 
but, on the other hand, pushing that point further oft by 
enabling industry to be better organized. The two principles 


may thus for a long while jostle against each other, some- 
times one sometimes the other predominating. But in time, 
if population increases, the principle of diminishing returns 
must prevail. There remain, however, two ways of attacking 
its power : to evade it by migration, or to combat it by 
improvements in the arts of production. And much of the 
history of the world depends on such migrations and such 

Pitfall. To say with Senior that additional labour when 
employed in manufactures is more, when employed in agri- 
culture is less efficient in proportion. This may be true of a 
particular country, but not as a general proposition. For 
this confines the law of diminishing returns to agriculture and 
the law of increasing returns to manufactures. In reality both 
laws apply to all industries. True the application of the law 
of diminishing returns to manufactures has not been con- 
spicuous in recent years, but it exists; when the best localities 
have been occupied, the best dimensions reached, further 
produce requires either the foundation of new workshops in 
less profitable situations (analogous to taking inferior land 
into cultivation), or as the other alternative (analogous to the 
less profitable application of labour and capital to a farm), 
adding to the staff, plant, or buildings of existing workshops, 
this additional outlay yielding in comparison with the pre- 
vious outlay, a smaller return. 

In any given time and place the degree of 
intensity in each industry is dependent on the 
amount of the produce which those who conduct the 
industry require for themselves or their customers ; 
and thus the more thickly any region is populated, 
the greater the degree of intensity with which its 
farms, its workshops, its means of transport are 
carried on, that is, supposing they are carried on 
for the greatest general good. 

To illustrate this let us revert to the examples 
already given. The elaborate cultivation some 
twenty years ago of the rich land in Scotland 
between Perth and Dundee was reasonable because 
of the abundance of people with effective demand 


for its produce, or in popular phrase, because of the 
capital markets for their crops, their stock, and 
their bye-products which the farmers of that region 
enjoyed. Such elaboration, the buildings, fences, 
machinery, manure, and labour, applied in parts of 
Minnesota or Manitoba would have given physically 
quite the same return, but would have been un- 
reasonable, because half the produce would have 
been left to rot for want of consumers. Rough and 
ready farming spread over large areas was the 
only reasonable agriculture for those distant and 
thinly-peopled provinces, in other words, extensive 
agriculture; whereas intensive agriculture was reason- 
able in the populous lowlands of Scotland. Again, 
the intensity of manufactures in the cotton industry 
of Lancashire is reasonable because a hundred 
million men are the customers of these cotton mills; 
but if their market was confined to Lancashire the 
elaborate contrivances of that industry would be in 
ruinous excess of the requirements. A magnificent 
railway with many trains running at great speed 
connects London and Liverpool. This is reason- 
able because of the multitude of men and goods to 
be conveyed from the one place to the other. An 
equally good railway of about the same length could 
easily be built between Niniveh and Babylon, and 
worked with equal speed and efficiency ; only the 
outlay would be absurd, as the trains would all be 
empty. And probably it would have been equally 
absurd some three thousand years ago to have 
connected the sites of London and Liverpool by 
causeways and canals such as then connected the 


populous centres of Niniveh and Babylon. Similar 
arguments the reader can easily apply for himself 
to fishing, mining, forestry, and commerce. 

Pitfall. To confuse intensification with improvement, and 
thus imagine that high farming must be "good" farming, 
and rough farming " bad ; " that a poorly furnished iron- 
foundry is a "bad" method of production compared with a 
foundry magnificently equipped with machinery and power ; 
that in these days a mule-path is a " bad " means of com- 
munication, a railway a " good " means. In reality there is 
no absolute standard of " good " cultivation or manufacture, 
all depends on circumstances. Intensive cultivation in the 
Channel Islands will " raise £100 worth of early potatoes 
from a single acre. But an equal expenditure per acre by a 
farmer in Western America, would ruin him ; relatively to 
his circumstances it would not be good but bad cultivation " 
(Marshall). And in fact many farmers have been ruined by 
this delusion, and many travellers have absurdly denounced 
the " bad " and wasteful agriculture of America, North and 
South, and of Eastern Europe, when really these farms were 
as well tilled relatively to their circumstances as those of the 
department of the Seine or of the county of Norfolk : only 
the circumstances required extensive agriculture in the one 
case and intensive in the other. In other industries this 
error has often led to practical mischief, to "overdoing 
things," as the phrase is, such as building a railway where 
a mule-path was adequate ; or two railways where there was 
barely traffic for one ; or grand markets with pillars of iron 
and roof of glass, where the volume of business required a 
few wooden sheds and nothing more. 



The capacity and dispositions of man for produc- 
tion vary greatly with race and nationality, physical 
and moral surroundings, religious, intellectual, and 
manual training. 

Problems of race, what is to be considered as 
constituting a distinct race, to what race particular 
individuals belong, what are the characteristics of 
different races, how far the characteristics of par- 
ticular groups or individuals are to be attributed to 
race or to other causes — such problems, owing to 
the incurable defect of evidence, are seldom capable 
of exact or sure solution. Hence when we hear of 
success or failure in political or economic life, or in 
science, literature, and art, set down to the influence 
of race, the word race often means merely the sum 
of unknown causes. 

We must not indeed deny the principle of heredity, but 
only deny its right to be a residuary legatee and be credited 
with all effects for which there are no other known causes. 
Thus if we compare a body of Chinese, Negro, and Malay 
common labourers of about the same age at work together, 
we must not say that the difference of their efficiency is due to 
race, unless the known causes that have been influencing 
these groups of men from their childhood, food, clothing, 
climate, physical training, intellectual training, moral training, 
the aims and ideals of their companions, the teaching and 


practice of their religion — unless these causes are inadequate 
to account for the technical superiority of the one group to 
the other. Even if they are inadequate, we still cannot be 
sure whether hereditary qualities have really anything to do 
with the difference unless we can be reasonably sure that 
some other important cause, as yet hidden from us, is not in 

The anthropological distinction of race is there- 
fore of little use in Economics, and the following 
points are those of chief interest to us. 

i. There can be fruitful intermarriage between 
all races, however great the apparent contrast 
between them whether physical or intellectual. 

2. There is no evidence that any race has ever 
become sterile, that is, physiologically incapable of 
increasing or even maintaining its numbers. It is 
even dubious whether any race can be said to be 
more prolific than any other, the existing great 
varieties of multiplication in different classes, regions, 
and nations, being due to known causes other than 

3. All races can live and thrive everywhere, 
everywhere that is, excepting certain swampy and 
frozen regions, and provided the change of climate 
is not beyond a certain limit of variety. Hindus 
and Swedes could not change places at once without 
immense mortality in the process of acclimatization. 
But if on their way both races halted for some 
generations in South Italy, they could then perhaps 
each go forward with little risk. It follows that 
to the inhabitants of most countries only certain 
portions of the earth are immediately available as 
fields for colonization. 

4. Just as no race as such, by its very blood, is 


doomed to physical decay, so too no race is doomed 
to intellectual and moral degradation ; the " irre- 
claimable savage" is a fiction. We know this indeed 
on other than anthropological grounds ; but as a 
matter of historical evidence no " savages " have as 
yet been found who have not been " reclaimable," 
where Catholic missioners have been allowed a free 
hand; and no "weaker" races have withered and 
perished, wherever we know anything about the 
circumstances, without the causes being only too 
plain and too shameful, and in no way mysterious 
or necessary. 

Pitfalls. (1) To set at naught the rules of inductive 
reasoning, and with ready pen to write down to the account 
of certain races, or imaginary races, certain capacities, 
virtues, or vices without any scientific evidence to sustain 
these assertions. This is sometimes even done in books pro- 
fessing to be scientific. 

(2) To ignore facts that will not square with preconceived 
theories ; notably to ignore the cruel treatment, demoraliza- 
tion, and frequent extermination of darker races by Europeans 
from about the year 1760 to this day. Such, for example, 
have been the destruction of the Jesuit "Reductions" in 
South America by the infidel Governments of Portugal and 
Spain; a similar destruction of Franciscan Missions in 
California, some half-century later, by the infidel Mexican 
Government ; the interminable plunder and ill-treatment of 
the " Red Indians " and breaking of faith by the American 
Government and colonists; a similar treatment of the Maoris 
in New Zealand; the extermination of the "Blacks" in 
Australia; the kidnapping with horrible cruelty and blood- 
shed of the natives of Polynesia to work in misery on planta- 
tions ; the spread of demoralization, disease, and death 
wholesale through Africa by European traders introducing 
intoxicating drinks. In all these cases the decay of the 
native inhabitants has been perfectly intelligible and perfectly 

Kconomic science is in close union with political 
science, separated from it rather for convenience than 


by necessity ; and the political distinction of nations 
and countries is more important in economics than 
the physical distinction of races. The terms nation 
and country are not indeed quite clear ; but we 
can get a definition clear enough for our purpose 
without a digression into political science. We can 
say that the world is in great part divided into 
different regions of considerable size, each separated 
from other regions in fact if not at law by consider- 
able political distinctions. Every such region is a 
country, and its inhabitants form a nation. Unity of 
race, of language, of religion, uniformity of habits 
and of territory are all helps towards forming a 
nation, but do not constitute it, nor is any one of 
them essential to national existence, though there 
could scarcely be a nation if none of them were 
present. And whether or no we can properly speak 
of a nation and of a country, of national life and 
spirit, among rude or wandering tribes, certain it 
is that any serious degree of civilization presupposes 
serious political organization. For civilization im- 
plies a certain proficiency in the industrial arts 
(in agriculture and manufactuers, mining, building 
and transport) and a certain proficiency in science 
and the fine arts (some knowledge of philosophy, 
history, and physical science, a written literature, 
and some decorative skill) ; all of which seem to 
presuppose an organized State. In fact, civilization 
seems only to be seen in combination with nations, 
these indeed of the greatest variety of size and 
power, of national spirit and vigour, of forms and 
stability of government, but still nations. 


If we need caution before making assertions on 
the economic characteristics of races, we need 
caution no less in the case of nations, and what 
is approximately true of one generation may become 
false of the next. Still at any given time we can 
•often affirm that hie et nunc among particular 
nationalities there is superiority, or it may be 
inferiority in special branches of production. Thus 
a few years ago it could have been affirmed with 
accuracy that Englishmen far surpassed all European 
nations as practical engineers and mechanics, as 
workmen in large factories with elaborate machinery, 
as miners in certain kinds of mines, and as navvies 
in railway construction. The French, in their turn, 
excelled in branches of production where an artistic 
or fanciful design was of prime importance ; the 
Americans of the North were singularly efficient in 
mechanical contrivances and the handling of intricate 
machinery ; the Chinese in vegetable gardening. 
But these peculiarities are not fixed ; new genera- 
tions may grow up with different training, aims, and 
habits of life, and their efficiency be more or be less 
or be different, as the consequence. 

Within each nation we may see, besides the 
obvious variation of capacity according to age, sex, 
and individual peculiarities of strength or skill, 
whole classes and districts physically below par 
from habitual want of adequate or proper food, 
healthy homes (especially in childhood), or sufficient 
rest and recreation. Among civilized nations such 
populations have sometimes been found in country 
districts, notably in malarious districts, but the 


large towns have by pre-eminence been the seat of 
these weakly multitudes, and the vast growth of 
such towns in the nineteenth century has raised a 
pressing problem how to prevent a corresponding 
growth of over-nervous, unmuscular, and anaemic 
inhabitants. Nor is it certain whether the great 
advance of urban sanitation has not rather increased 
than diminished the difficulty of the problem. 

The moral dispositions of the workers have an 
immense effect on productive capacity, and in three 
principle ways : first, by helping or hindering con- 
certed labour (as we shall see* in the next chapter) ; 
secondly, by the physical and mental weakness that 
often result from vice ; thirdly, by the repugnance 
of the discontented and insubordinate to labour, 
whence the costs of production may be much 
augmented, and a given expenditure of physical 
energy produce a smaller result. But moral dis- 
positions are in great measure dependent on the 
training of the young, which in this and in other 
ways is of profound influence on the productive 
power of nations. 

Each child starts with incapacity, ignorance, and 
concupiscence : the home, the church, the school, 
and the farm or workshop are the means by which 
each generation of men are brought out of this 
state ; enabled to earn an honest living and serve 
their country and their God ; enabled also to do 
the same good office for their successors. The 
process is called training, or, in a wide sense of the 
word, education ; interrupt any serious part of it 
for a few years, and the results are terrible ; the 


downfall of arts and sciences, the appearance of 
stunted and feeble, or brutal and ignorant, or 
sensual, covetous, and heartless populations ; ex- 
amples of which in the sad history of the world are 
only too abundant. 

Education then is no slight matter ; and the 
proper harmony and combination of the four great 
agencies, domestic education, religious education, 
scientific education, and industrial education, is one 
of the first conditions of national welfare. 

Pitfall, into which those fall who follow the principles of 
the French Revolution. To exaggerate the importance of 
one of the four great agencies of education, namely, the 
school, and to reduce to little or nothing the influence 
of the other three, namely, the home, the church, and the 
workshop. In reality, if we had to dispense with one of 
the four, the school is the one that could be spared with 
the least evil. 

Wherever Christianity has prevailed it has created good 
homes where the young have been trained in obedience and 
reverence, in self-restraint and strict morals, in filial piety 
and brotherly affection. And on this foundation the true 
intellectual culture of the masses of the population has 
flourished, sometimes with, sometimes without, the mechanical 
appliances of reading and writing: culture, namely, by the 
intelligence of lofty doctrines on the philosophy of life and 
the mysteries of religion ; culture by familiarity with beautiful 
literature in prose or poetry and examples of virtue and 
heroism ; sometimes also by acquaintance with a second 
language, by frequenting the performance of historical or 
religious plays, by enjoyment of beautiful works of art. 
Witness the Christian peasantry wherever Christianity has 
been flourishing and peace preserved. Moreover the Christian 
religion, just as it permeated the home and the school, per- 
meated the workshop as a place of education ; the monasteries 
grew at one tunc to be the great centres of industry and 
industrial training, the model Farms and technical schools of 

their <\:i: ; and the. system of apprenticeship whieh arose 

afterwards throughout Christian Europe i-i ;<11 elaborate 

handicrai generally successful in the. education oi 

jikilful ai and god-fearing citi/< 


In our own time in Europe and America there 
is much discussion on technical education, partly 
verbal, partly the result of illusions on human 
nature, partly also a rational inquiry on how to 
adapt industrial training to new conditions of 
industry. More than a century ago an industrial 
revolution began both moral and technical ; and a 
disorganization of industrial training has been one 
of the consequences. How the moral reorganiza- 
tion is to be effected cannot be fitly considered till 
the Third Book on the relations of masters and 
workmen, rich and poor. Here the technical 
changes in education have to be considered corre- 
sponding to three great changes in the world of 
industry, first the growth of production on a 
large scale in factories with elaborate machinery; 
secondly, the growth of physical science and its 
application to industry, so that the old phrase, 
"learned profession," is no longer confined to 
theology, law, and medicine ; thirdly, the growth 
of the means of communication, such as railways, 
steamships, and telegraphs, causing a vast increase 
of buying and selling and of production for distant 

The matter being somewhat complicated requires 
to be examined with some care. Let us, therefore, 
first distinguish general from special education, result- 
ing in general and specialized ability, the two- 
processes of education not separated by a hard and 
fast line, and often proceeding simultaneously, but 
still distinct. The moral, physical, and intellectual 
development that should be common to all, is the 


work of general education, and is carried on no less 
at home than at school, no less in play-time than 
in lesson-time. But in every civilized society we 
are obliged even for general education, as far as 
aiming at intellectual development, to make a rough 
distinction of lower, middle, and higher classes. 
For the literary culture that should be the common 
property of "every one," whatever his trade or 
profession, means " every one in the same rank of 
life ; " and there are different ranks to which corre- 
spond what are known as primary, secondary, and 
higher schools. It cannot be otherwise : and more- 
over, as we shall see proved in the Third Book, the 
numbers for whom primary education is sufficient 
are the great mass of the population, while those 
for whom secondary or higher education is suitable 
are by comparison the few. 

This general education that is to make good men 
of us, is the foundation of the special education for 
special avocations, that we may become for example 
good ploughmen, or good cotton-weavers, or good 
bricklayers, or good foremen in iron-works, or good 
farmers, or good engineers, or good lawyers. Part 
of general education is obviously essential, most of 
it highly conducive to success in special education. 
A lad well trained to use his eyes and hands, his 
memory and common sense, to be obedient, honest, 
diligent, and steady, quick to read, write and reckon, 
has a good outfit for most ordinary employments ; 
and if he has further general accomplishments, tiny 
will in themselves be no hindrance but often ;i help. 
It has been noticed how quickly those who have 


enjoyed higher general education are able to acquire 
the technical details of particular trades. It may 
indeed happen that intellectual culture, notably if 
much beyond what is the suitable average for a 
man's rank in life, will injure his technical capacities 
by rendering the commoner occupations distasteful 
and irksome ; and writers point out that one of" the 
great and growing social evils, especially in North 
America, France, and Germany, is the over-education, 
stir menage scholaire or Ueberbilding, producing a crowd 
of men and women too fine for their surroundings, 
and unable or unwilling to earn an honest living. 
The danger, no doubt, is great, the misery caused 
by this fabrication de declasses is incalculable. But 
mark well the real ground of the evil is not so much 
the excess of literary education as the deficiency of 
moral education; these declasses are not so much 
over-educated as under-educated, because their 
homes have been disorderly and their schools 
godless. And the only thorough remedy is to 
restore good homes and religious influences. If 
this is done, then any excess in literary training 
will soon fall away of itself. 

At the beginning of the sixteenth century a similar delusion 
to that of our own day prevailed : the moral training at home 
and at school was despised, and absurd importance was 
attached to intellectual training at school. The difference 
was that the " humanities " was the branch of learning which 
the Renaissance worshipped, while our idol is physical 

Turning to special education, observe the three 
grades of primary, secondary, and higher, which 
must always exist and therefore should always be 


distinguished. The industrial revolution and the 
development of physical science have altered in 
many departments the matter and methods of 
teaching, but have not removed this radical and 
necessary division. Thus a higher special educa- 
tion is required not only as of old for theology, law, 
and medicine, but also for the military and naval 
service, for the various professions that can be 
comprised under the title of civil engineer, and for 
the head management of many branches of industry 
that require a thorough scientific knowledge of 
chemistry and mechanics. The special scientific 
training at schools and colleges, which is wanted 
as a preliminary to these higher departments of 
industrial labour, can be called higher technical 
schooling, forming one part of higher technical educa- 
tion, the other and no less necessary part being 
actual practice at the works amid the workmen. 

Next below comes the education needed for 
foremen and superintendents in most industries, 
for a certain number of higher workmen in many, 
for the small masters in some, and for almost all 
the workmen in a few delicate or artistic crafts. 
For these various categories of men the technical 
education required is also double, namely apprentice- 
ship, that is being taught in the works and by 
working, and then either previously to apprentice- 
ship or at least simultaneously with it, being taught 
in schools the physical science which is the founda- 
tion of their trade. Their education may be called 
secondary technical education, and the part of it taught 
in schools, secondary technical schooling. 


The science taught at the schools may be kept up and 
widened in later years by reading trade journals and scientific 
books on mechanics, chemistry and physics ; while in certain 
departments of industry commercial geography and foreign 
languages may take the place of physical science ; and in 
other departments the drawing, designing, and the knowledge 
of materials useful for artistic handicrafts. 

Below these workmen come the great mass, 
for whom now as formerly elaborate technical 
education whether in schools or workshops is not 
wanted, and would be a waste of time. The handi- 
craftsmen of old times who went through a seven 
years' apprenticeship were but a small fraction of 
the general population and corresponded not to the 
ordinary workpeople of modern factories, but to 
the select few, such as foremen and those in charge 
of special machinery and difficult processes. The 
vast multitude need no more than primary technical 
education and principally that sort which they get 
by actually working in the fields or stalls, in the 
mills or furnaces; the great point being, not the 
technical, but the moral conditions of this apprentice- 
ship, whether the lad is working under his father's 
eye, the girl under her mother's, or under those who 
can be in the place of parents to them, or not. But 
there remains the question whether we can recognize 
as reasonable such a thing as primary technical school- 
ing. And within limits we can ; that is, whenever 
a large body of scholars in a primary school are 
likely to be employed afterwards in some particular 
industry, a certain instruction in that industry can 
be reasonably given with no prejudice to their 
general education. 


Thus in rural schools a certain amount of botany and 
natural history, as far as bearing on the plants and animals 
the pupils will have to deal with, might be taught with 
advantage ; in forest countries wood-carving and turning 
(the Swedish hand -culture called slojd) ; in other cases, 
perhaps, drawing and designing; and in manufacturing 
centres the use of the particular tools and materials of the 
children's future work in factory, workshop, or mine. They 
will get on easier and quicker, doing less damage to materials 
and implements. Only do not exaggerate the importance of 
this primary technical schooling ; it is little compared with 
a sound physical, mental, and above all moral training at 
home and at school to begin with, and with good moral 
surroundings afterwards in the workshop. 

Observe that the sudden growth of the need for every one 
to learn reading and writing, a result of the technical revolu- 
tion and the spread of communications, threw physical 
training into the shade ; but the revival of what is some- 
times called manual training, is not to be confused with 
technical education ; for technical education is special, 
whereas the proper training of eye and hand, that all should 
have, is part of general education. 

Pitfalls on technical education. First, to imagine that edu- 
cation, such as is given in secondary technical schools, is 
desirable and possible for the whole population, instead of 
for a select few ; as though all could be at the top and as 
though, since the essence of technical education is to fit for a 
special post, it would not be ridiculous to apply it to those 
unlikely to occupy that post. Really there is latent socialism 
in this view, equality of education being contradictory without 
equality of goods. Observe, however, that many seem to 
approve of giving secondary technical education to every- 
body, when all they really mean is that certain primary 
technical schooling be given in elementary schools, or, 
perhaps, only that the physical training be given which, as 
already explained, belongs to general education. 

Second Pitfall. To imagine that, at least for all skilled 
trades and scientific industry, there is no longer need of 
apprenticeship, the place of which can be taken by technical 
schools, now that industry has passed from the empirical to 
the scientific stage. This error is fostered by the question- 
begging use of the phrase technical education to mean only 
the teaching given in technical schools. In reality, for all 

positions, and the highest not the lea it, practice in the works 

ential. Competent Ob • that training in the 

workshops is a more prea ing Deed than t< hnical school 

teaching, and that the be I of youth should be Spent 


in them. For, if the works are well conducted, whatever a 
lad learns there for himself by direct experience "teaches 
him more and stimulates his mental activity more than if it 
were taught him by a master in a technical school with model 
instruments." (Marshall). Hence, as a general rule the chief 
part of secondary technical schooling should not precede but 
accompany work in the workshop, and be in the shape of 
night-schools, or attending classes so many days in the week, 
or if the industry has a slack time in the year, utilizing it for 
technical schooling. 

Third Pitfall. To run to the other extreme and imagine 
that now it is enough to learn trades in the workshop, that 
scientific agriculture is wholly a delusion, that the demand 
for well equipped technical schools is an idle fashion, a mere 
craze for the moment : as though there had been no revolu- 
tion in both science and industry ; as though we were still in 
an empirical and not a scientific state of industry ; and as 
though because scientific teaching was not everything it was 
therefore nothing, and the way to mend one folly was to 
commit another. The opinion, indeed, that in the fine arts 
and highly artistic industries, art schools are not the proper 
means of making good designers or craftsmen, but only 
apprenticeship, rests on quite different grounds from the 
illusion we have rejected, and is at any rate quite a tenable 
opinion. For an advance in science by a nation or by an 
individual is very far from implying any advance in fine art. 

Two matters yet remain touching technical 
education, the one the costs of it, and the other 
the limits. Education in general, and schools in 
particular, and technical schools above all, are 
costly; and the terms " free " or "gratuitous," so 
often used in regard to them only mean that the 
cost is not borne by those who receive the immediate 
benefit of the instruction. But the cost remains to 
be borne by some one ; and on whom it ought to 
fall is a delicate question not to be decided without 
special regard to the particular circumstances of 
each country. This much indeed can be said in 
general, that the action of the central and even the 


local Government should be supplementary, filling- 
up deficiencies and preventing abuses in the educa- 
tion provided by private enterprise and private 
charity ; and that in a country where vigorous 
manufactures and eager and intelligent manu- 
facturers already abound, an excellent method by 
which Government can foster technical education 
is to require that all who have to control or di r ect 
the industry of others, from the simplest foreman 
upwards, must first pass a test of technical pro- 
ficiency. For then we may be sure that the great 
manufacturers will soon provide in connection with 
their workshops such technical teaching as is 
required ; and that the lesser manufacturers will 
coalesce into groups for the same purpose. 

When Christianity is widespread and its work not hindered 
by violence, the poorer classes of society become endowed 
with a vast patrimony for education, partly in the shape of 
property assigned for this purpose by charitable donors, 
partly in the shape of labour (like that of many religious 
orders and congregations) given more or less gratis for their 
benefit. And this educational endowment is often technical 
as well as general, witness even to this day the work for 
example of the Christian Brothers in Europe, of the Trappists 
in Africa, of the Salesians in America. 

The limits of technical education bear a striking 
analogy to those of the resources of the earth ; both 
are capable of immense increase, as we shall see 
presently, by progress in the industrial arts ; but in 
any given state of the arts, if we keep spending 
more and more on education, we shall reach a point 
when there will be less proportionate result, like 
the diminishing returns to increasing Intensity of 
production. If a lad is to be a cabinet-maker, a 


stinted outlay on his technical training will leave 
him an inefficient workman ; let us double the 
outlay and probably he will not only be double but 
treble as efficient ; but if we double the outlay again 
he will not be six times as efficient as at first, but 
perhaps only four times ; and if we persist in going 
on with this training, he will die before he can turn 
all this elaborate preparation to account. 

Observe, moreover, that as technical education is part of 
the costs of any industry, it comes under the rule already 
explained (at the end of the last chapter) which decides in 
any given place and time the reasonable degree of intensity ; 
and thus in each particular case the reasonable outlay on 
technical education will depend on the quality and quantity 
of produce required in that case. 

For example, it is waste of time for a man to learn the 
elaborate processes needed for making delicate inlaid and 
polished furniture, when in fact he will be employed only in 
rough carpentering for cottages and farm-buildings. Again, 
if in fact a man in a ribbon factory will only have to piece 
threads and replace the exhausted weft, the elaborate training 
he may have had, enabling him to design, weave, and colour 
ribbons, is thrown away. To train a lad to know well the 
main branches of agriculture and stock raising, as well as 
the business of the home and foreign cattle and corn trade, 
is an admirable work if there is a post for him to occupy and 
to exercise his acquired capacities, but absurd if in fact he is 
to be a small peasant farmer with his own household his 
chief market. 

No doubt it is impossible to adapt education to opportunity 
without ever making a mistake ; calculation beforehand is 
difficult ; and considerable waste of technical training cannot 
at the present day be avoided. But this much can be said, 
that, if in some industry a hundred posts will soon be vacant 
requiring simple work, and five posts requiring elaborate work, 
to give elaborate education to a hundred boys or girls, and 
simple education only to five, is not a reasonable course. 

Apart from limits to education, the productive 
capacity of a nation is limited in two other ways, 
by the hours of possible labour, and by the numbers 



of the workers. On the last point it is enough at 
present to say that by mere excess of births over 
deaths, the annual increase can seldom exceed 
fifteen in every thousand ; and hence the eagerness 
of many countries at many different times to supple- 
ment this slow growth by immigration. On the 
other point, the possible hours of labour, we cannot 
determine accurately the maximum number of hours 
in the course of a year during which work can be 
carried on without injury to the physical powers 
of the worker ; we can only say that it varies with 
different employments, different localities, different 
sex and age, different domestic and individual 
circumstances ; and that after a certain point extra 
hours of labour give not merely less return pro- 
portionately, but, if we look at the produce of 
overworked labourers through several years, less 
absolutely. On which fact two observations are to 
be made : one, that because such overwork is a 
national loss, this is no security that it will not be 
carried on, an evil fruit of bad social relations : 
witness the negroes in Jamaica at the beginning of 
the nineteenth century, many of the factory workers 
of England in the middle, many of the non-factory 
workers at the end. The second observation is 
that this maximum number of working hours con- 
sistent with efficiency is generally more, often much 
more, than the maximum consistent with national 
welfare ; and that in every Christian State worthy 
of the name, if the full number of hours of work not 
physically injurious is permitted on ordinary days, 
at least all workmen as far as possible should be 


secure of Sunday rest, of Saturday half-holiday, and 
of many holiday and festival-days besides scattered 
through the year. 



The terms industrial organization, the organization 
of labour, joint action of men in production, division 
of labour, co-operation, concerted labour, can all be 
used to express the notion of men acting in concert 
in the process of production. This concert or 
organization may vary from extreme simplicity to 
extreme complexity, according to the greater number 
of men working in concert, and the greater difference 
in the nature, the place, and the time of each man's 
work. Thus when two men pull a rope or lift a 
stone together, their concert is extremely simple : 
the same work is being done at the same time and 
place, and there are only two who act together. 
The other extreme is the concert which enables- 
a Hindu to buy English-made cotton cloth in the 
bazaars of Lucknow. For this purpose innumerable 
persons, mostly totally unknown to each other, have 
acted in concert, doing different things at different 
times at different places : those who have worked 
on the cotton plantation in Virginia, on the railways 
or canals in America, England, and India, on the 
vessels across the Atlantic and the Indian Ocean, in 
the spinning-mills and weaving-mills of Lancashire, 


and in merchants' offices in three continents. Many 
other workers have also to be reckoned, such as 
those who, perhaps years ago, built the railways, 
the vessels, and the factories, and those who have 
made the implements and the machinery used in 
any part of this complicated process of production ; 
and then there is a whole crowd besides whose con- 
tribution to the result, being very small or indirect, 
we have to take no count of; else we should never 
reach the end of our reckoning. 

There must be some reason for such concerted 
labour, and it is to be found in the advantages that 
are to be gained by men working together. These 
advantages can be numbered and put in the follow- 
ing catalogue. 

(1) Increase of mechanical force, enabling heavy 
weights to be lifted, large boats rowed, piles driven 
in, when none of these works could be done by the 
same number of men each working separately. 

(2) Simultaneous execution of different opera- 
tions which are of use only if done simultaneously, 
as when one man dives for pearls, while several 
others manage the apparatus for supplying him with 
air and raising him to the surface. 

(3) Extension in space, as keeping in constant 
repair a road, a dyke, or electric cable. 

(4) Compression in time, when something has 
to be done quickly, as extinguishing a fire, reaping 
a harvest, or making the most of a shoal of fish. 

(5) Extension in time, enabling a work that 
would suffer by interruption, as navigating a ship 
at sea, to be carried on uninterruptedly. 



(6) Saving in the cost of learning, by keeping to 
one or few employments. Had a man to learn 
twenty trades, he would be an apprentice all his 
life and never a workman at all. 

(7) Increase in dexterity through attention to 
one or few things, according to the old adage, 
Practice makes perfect. 

The dexterity of a practiced worker often appears in- 
credible. Even those of small natural powers can gain great 
proficiency by limiting their operations. Thus, " in a clothing 
or a boot factory, a person who sews, whether by hand or 
machinery, just the same seam on a piece of leather or cloth 
of just the same size, hour after hour, day after day, is able 
to do it with far less effort and far more quickly than a 
worker with much greater quickness of eye and hand, and 
of a much higher order of general skill, who is accustomed to 
make the whole of a coat or the whole of a boot." (Marshall.) 

(8) Utilization of different degrees and kinds of 
capacity. Thus speed, agility, muscular strength, 
great stature, good memory, quick intelligence, 
presence of mind, and other bodily or mental 
qualities can receive each its appropriate employ- 
ment, and easy work be reserved for weak heads 
and feeble limbs. 

(9) Saving of time and energy in not having to 
shift often from one occupation to another. 

Rather too much stress has been laid by Adam Smith on 
this advantage ; for the loss before the new work is fairly 
started may be compensated by the relief to head and hands 
from the change in the form of exertion. 

(10) Immense saving of labour and property by 
enabling the same exertion or the same means of 
production to serve towards multiple instead of single 
production. It is practically no more trouble to 
carry fifty letters from London to New York within 


the space of a few days than to carry one, and very 
little more trouble to carry ten thousand ; for the 
apparatus necessary for carrying one is very nearly 
adequate for carrying ten thousand. 

This is an extreme case ; but there are many others not 
so extreme, yet equally conclusive. One cowherd can look 
after all the cattle on the open fields of a small commune ; 
if there was no concert, each household would have to 
employ a cowherd of its own. A square with an area of 400 
square yards requires a fence 80 yards long to enclose it : 
the same area in four separate squares requires 160 yards. 
To carry pipes and wires under a roadway for water, gas, or 
electricity, is little more expensive if fifty houses are to be 
supplied at the end of the road, or only one. 

(11) Immense saving of tools and implements. 
If every one did everything, all would want all 
kinds of tools, and most of the tools would be lying 
idle most of the day. To mutually borrow and 
lend them would no doubt lessen the number 
required ; but this advantage would be due precisely 
to labour being less isolated and more concerted. 

(12) Industrial enterprises of which the reward 
is more or less distant, are greatly facilitated if by 
concert it is arranged that one set of persons attend 
to them exclusively and uninterruptedly, and are 
supported by another set who can wait for their 
repayment till the enterprise is completed, for 
example, till the palace is ready for habitation, 
the great ship fit for sea, the canal or railway open 
for traffic. 

(13) Improvements of all kinds in the arts are 
fostered by many working together at the same 


(14) Greater opportunity of using the particular 


advantages of particular localities ; the inhabitants 
of each district devoting their principal energies to 
the agricultural, mineral, or manufacturing industry 
for which their home has the principal advantages, 
as coal mining and iron manufacture in parts of- 
Yorkshire, dairy farming in Denmark, vineyard 
culture on the Garonne. 

All the foregoing advantages do not indeed apply 
to all concerted labour indiscriminately. In par- 
ticular the exclusive attention to one employment 
is unsuitable where the employment is not con- 
tinuous, but limited to certain times and seasons, 
like ploughing, sowing, and reaping in England, or 
like the building trades suspended by northern 
winters or tropical rains, or like navigation in the 
waters of Northern Europe and America closed by 
ice in the winter, or like the inland transport of 
heavy goods in Northern Asia closed with the break 
up of the winter frost. Another limitation to great 
subdivision of employments is in the small quantity 
of the produce required. Thus it was reckoned 
by Adam Smith that in the remote Highlands of 
Scotland a man who was a nailer and nothing else 
could make in one day all the nails he could dispose 
of in a year. Plainly in such circumstances there 
could be no separate trade of a nailer ; whereas in 
a populous region such a quantity of nails might be 
required as to furnish exclusive employment to 
many workmen. 

This limitation is analogous to that already explained of 
increasing in any industry the degree of intensity and the 
outlay on technical education ; a limit namely being set by 
the produce then and there required. (Supra, pp. 28 — 30, 45, 46. 


Adam Smith expresses the limitation before us by the phrase, 
that " division of labour is limited by the extent of the 
market." How far such division can be carried where the 
employment allows it, and the market is half a continent, 
can be seen in the large American boot factories, in which 
more than ninety distinct classes of workers are recognized. 

From what has been said on concerted labour 
we can advance two propositions. One is that the 
advantages of concerted labour are very great — in 
Professor Marshall's words, that " the collective 
efficiency of production depends on its organization 
almost as much as it does on the numbers of those 
who work, or on their individual efficiency." The 
second proposition is that the greater the number 
of inhabitants in a given district (in other words 
the denser the population), the greater up to a 
certain point can be the degree of concerted labour 
(in other words the better organized can be their 
industry). A third proposition follows, that up to 
a certain point increasing intensity in production 
yields a greater return in proportion to the costs ; 
or put in another way, that in any given state of 
the arts of production the denser the population 
the easier for them up to a certain point to get 
their living. The technical term in use to express 
this truth is the law of increasing returns. 

Observe, however, that this increase is only up 
to a certain point. However numerous the popula- 
tion, however great the demand for the produce of 
an industry, subdivision of an employment cannot 
extend ad infinitum; and of all concerted Labour it 
may be said that it may become so complicated 
as to cease at last to give any extra advaut. 


Remember also that the very increase of popula- 
tion, which fosters organization, leads us sooner or 
later to the law of diminishing returns already 
sufficiently explained. And thus as said before, 
the principle of increasing returns is no match for 
that of diminishing returns, and requires the help 
of industrial progress and the dispersion of man, 
in order that the material well-being of the world 
from age to age may rest, so to speak, in a secular 

Pitfall. To exaggerate, like Bastiat the French optimistic 
economist, and the Americans Carey and Mr. George, the 
importance of the law of increasing returns, and to deny or 
ignore the existence of the law of diminishing returns. In a 
colonial country indeed this error is easily explained by what 
the writers see and by what they forget. They see the 
immense use of neighbours to isolated farmers. As Professor 
Marshall puts it (Principles, p. 217) : " Even if most of his 
neighbours are engaged like himself in agriculture, they 
gradually supply him with good roads, and other means of 
communication : they give him a market in which he can buy 
at reasonable terms what he wants, necessaries, comforts, 
and luxuries for himself and his family, and all the various 
requisites for his farm work : they surround him with know- 
ledge : medical aid, instruction, and amusement are brought 
to his door; his mind becomes wider, and his efficiency is in 
many ways increased. And if the neighbouring market-town 
expands into a large industrial centre, his gain is much 
greater. All his produce will be worth more ; some things 
which he used to throw away will fetch a good price. He 
will find new openings in dairy farming and market-gardening, 
and with a larger range of produce he will make use of 
rotations that keep his land always active without denuding 
it of any one of the elements that are necessary for its 

All this is remembered, but three things are forgotten. 
First, that these advantages do not go on indefinitely with 
every increase of population. Secondly, that we must not 
compare the farmers or landowners amid the thin rural 
population of the early colonial times simply with the farmers 
or landowners when population is dense : but must compare 


the whole body of inhabitants at the one period with the 
whole body at the other period, if we are to judge of the 
average well-being; and thus in the second period must 
include a crowd of common labourers, urban and rural, who 
were absent in the first period. Thirdly, that even the 
farmers themselves, though their money income may seem 
to have increased several times over, have lost a great deal 
that was not indeed reckoned in their income in the old 
backwoodsman days, but yet was income : the materials for 
buildings, for implements, for fuel all gratis ; pasture and 
hunting and pleasure-grounds with abundant game and wild- 
fruits all to their heart's content ; not to speak of the absence 
of infectious germs whether physical or moral. That they 
may have gained much by their neighbourhood becoming 
populous does not alter the fact that there has been a loss 
to be made up for ; and if their previous abundance was 
rude, it was yet abundance ; whereas the error before us 
forgets both the abundance and the loss. 

Indeed we have to put some further shadows 
into the picture of industrial organization that 
seemed at first so brilliant. For man's nature being 
vitiated, it comes about that concerted production 
when it is no longer simple, but complicated, is often 
accompanied by evils of which, if not the cause, it is 
at least the prerequisite ; and these evils compel 
us in our economic arithmetic to make from the 
sum of that previous list of advantages an immense 

This deduction can be divided into three principal 

(i) Increase of misdirected production. This can 
extend from the earliest to the latest stages of the 
productive process, the mistake of learning the 
wrong trade or function, growing the wrong crop, 
manufacturing the wrong goods, buying the wrong 
merchandize. Mistakes indeed will o< 
where concert is simple ; but DO constant an d 


mistakes such as are seen in the world around us. 
Thus numerous bodies of men have habitually too 
much or too little to do, alternately out of work 
and overworked ; houses, roads, even railways are 
constructed, too many or of the wrong sort for the 
locality and are little used, while in other places 
there is a grievous want of them ; and above all a 
multitude of goods liable to be spoilt or damaged 
by keeping, are in fact thus spoilt or damaged, 
because traders mistake the quantity they will sell. 
If nothing were made or procured but " to order," 
as in simpler industrial organizations, such great 
losses would be avoided. 

When indeed goods are not spoilt or damaged, but only 
depreciated, and have to be cleared out " at any sacrifice," 
we must not reckon the loss, from the national point of view, 
by the amount of this depreciation ; for much of the loss of 
the seller is compensated by the gain of the buyer. 

(2) Increase of misdirected consumption. This 
drawback is, perhaps, more important even than 
the last, and has not received the attention it 
deserves. At all times indeed ignorance, folly, or 
vice may result in people consuming what is not 
good for them at all, or what is less good for them 
than something else they could procure, and thus 
more or less wasting their income. But where 
concerted labour is complicated, it may happen, 
and in our present industrial organization does 
happen, that it is the immediate interest of many 
people to produce and sell inferior merchandize 
and to foster misdirected- consumption. Thus in 
England at present there is a vast production of 
goods known as cheap and nasty, which are really 


not cheap, if by cheapness we mean that the cost is 
low in comparison with the utility. The enormous 
quantities of bad beer, ill-made " cheap " bread, 
" slop " clothing of " shoddy " cloth and soap, boots 
of bad leather ready-made and machine-sewn, 
"jerry-built" cottages and houses in which all 
the work has been " scamped," furniture made of 
unseasoned timber and knocked together with nails 
instead of being dove-tailed — such goods are not 
really cheap, but wasteful : wasteful because they 
are often inefficient as objects of enjoyment, when 
a little increase in cost would give a great increase 
in efficiency, and sometimes even injurious to health, 
and their " cheapness " dearly bought by the absence 
of earnings and the presence of medical charges ; 
wasteful, moreover, because of the frequency of 
repairs or renewal that is necessary and that perhaps 
for some twenty per cent, more cost might be 
lessened two hundred per cent. It is thus probable 
that the sums annually wasted by the English 
middle-classes on " doing up " their houses, and 
by the working classes on replacing their clothing, 
amount to many million pounds. And the vast 
majority of consumers have no choice but to 
acquiesce in this waste, as they lack the time and 
the technical knowledge to procure well-built houses 
and durable clothes, and must take, as the only 
guides at hand, appearance and price, following the 
fashion of the day and selecting what looks the 
best and is called the cheapest. 

So Professor Marshall complains "that in all kinds of 
clothing and furniture it is every day more true that it is the 


pattern which sells the things " (Principles, p. 273) ; and he 
laments the "rapid changes of fashion which now extend 
their baneful influence through almost every rank of society." 
(P- 347-) 

Hence good merchandize is at a disadvantage 
compared with bad, and cannot find purchasers, not 
from any ''insane craze of the public for cheap- 
ness," as is sometimes said, but because the public 
do not know, and cannot know, any better. And 
thus unless some protection is given to good work- 
manship it is probable where industry is highly 
organized that the inferior merchandize will drive out 
the superior. 

Then further it has become the interest of whole 
bodies of men to promote that particular species of 
misdirected consumption that is to be called depraved, 
by enticing others to purchase what is morally or 
physically injurious to them. Two notable examples, 
keeping again within the limits of modern England, 
are the enticement of working women to get into 
debt and ruin their homes by the purchase of 
trinkets and dresses from travelling vendors ; and 
secondly, the enticement of all the poorer classes 
in town and country to become drunkards. The 
immediate and direct waste of wealth is probably 
not so great in these cases as in those former cases 
of the use of inferior merchandize ; but the ultimate 
and indirect waste is probably greater. A third 
example of depraved consumption, perhaps the 
most disastrous of all, and common to many lands, 
is the calamitous choice of the towns as a dwelling- 
place instead of the country, a choice which implies 
industrial organization, but which has only become 


a national danger after the technical revolution of 
which we shall speak in the next chapter. 

(3) Increase of dishonesty. The spread of 
buying and selling and of many dealings between 
those unknown to each other personally, and care- 
less of each other's good opinion, are not the cause 
indeed, but the opportunity of much cheating and 
trickery. Mere transfer indeed of wealth to the 
smart or crafty from the simple or conscientious is 
not in itself a waste of wealth ; but the process 
involves a waste in the precautions against being 
cheated, in the precautions against being found out, 
and in the time and goods spent in adulterating 
wares and in deceiving purchasers. 

Perhaps the two most striking instances of possible 
deductions on the score of dishonesty to be made from the 
advantages of elaborate industrial organization are first the 
destruction of buildings by fire set on purpose, and secondly 
of ships by being unseaworthy, or overloaded, or deliberately 
sent to the bottom, the motive being to gain the sums for 
which the ships or buildings are insured. It would be well if 
we could say that such destruction was a rare enormity ; but 
we cannot. Apart from these two cases, the drawback under 
the head of dishonesty is small compared to that under the 
heads of misdirected production and misdirected consump- 
tion, and is no new and portentous phenomenon of our 
present industrial organization. For trading and dishonesty 
have been twin-brothers, or at least from an early age have 
been boon companions. The peculiarity of our time is rather 
in the names we give to dishonesty, calling it smartness, or a 
form of competition, and in the immunity which it enjoys, 

ecially if practised on a large scale. 

Besides these three principal drawbacks to con- 
ted labour we may add three other minor ones. 
(.\) Increase of carelessness. The more compli- 
cated the industrial organization, and tin more each 

workman is employed not on his own property 


working for himself, but on others' property for a 
master, or in joint property for a body of which he 
is but one small constituent, the less motive there 
is for careful work, the greater likelihood of negli- 
gence. And negligence can cause great loss in the 
process both of production and consumption. Only 
much the greater part of this loss, for example, 
the gigantic waste and damage done in private 
houses through the carelessness of servants, is 
not to be imputed to the elaborate concert of 
labour, but to the bad social relations between 
rich and poor. 

(5) Physical injury by working exclusively at one 
thing. This is true of certain trades ; and perhaps 
those who smelt copper, grind steel, manufacture 
chemicals, scour pottery, and dip glass, should only 
give a half or a quarter of their working time to 
this employment, and do something else during the 
rest of it. But for the great mass of employments 
there is not any such serious likelihood of evil 
results from attending to them continuously, provided 
always that the proper precautions are taken — 
namely, that the special sanitary risks of each trade 
be met by proper clothing, cleansing, and other 
contrivances ; that none be admitted whose consti- 
tution is unfit for the particular trade, and that the 
hours of work be reasonable. No doubt if these 
precautions are neglected, the division of labour 
appears to result in physical degradation ; but that 
neglect is the true culprit, not this division. 

(6) Mental degradation. It is said that where a 
man has for his whole employment some seemingly 


trivial, mechanical, and monotonous work, like 
piecing threads, replacing exhausted weft, grinding 
needles, stamping names, there is no scope for his 
reasoning and artistic faculties, and he becomes a 
mere automaton. But though it is true that the 
introduction of great division of labour has at times 
been followed by the intellectual degradation of the 
workmen, as in Lancashire fifty years ago, and in 
London now : the part of that degradation really 
due to division of labour has been next to nothing, 
the part due to evil social relations has been almost 
everything. In the Third Book we shall examine 
these relations ; here we need only say that where 
they are good, no workman need have his faculties 
blunted or dulled by his work ; and although he 
may not be able to take a pride in it, as a plough- 
man in his straight furrows, and a carpenter in his 
smooth and solid woodwork, he can take a pride 
in being steady, careful, diligent, cheerful, and in 
making good use of his earnings and his leisure. 

Pitfall. To exaggerate the evils of the division of labour, 
and to compare a mill-hand of to-day with a craftsman of 
the time before the technical revolution ; as though the real 
modern representative of the ancient craftsman was not 
rather the skilled manager of elaborate machinery, like the 
pattern -en gravers in cotton printing, and the foreman who 
starts a loom in a ribbon manufactory, or again the skilled 
repairer of machinery ; and as though mere mechanisms and 
technical processes were all important, and not rather the 
vigour of faith and morality, the personal relations of parents 
and children, masters and workmen, rich and poor. 

Let >is avoid this mechanical view of social questions, and 
bold Bast to the ethical view; and then we Bhall avoid not 
only thii pitfall, but another, which Beems, but ifl not really, 
opposite to it ; for Adam Smith falls Into the one at the 
• the Wealth of Nations (Bk. I. c. L), and into the 
other at the end (Bk. V. (. i. Part 3, art 2). 


Pitfall. To think or imply that elaborate division of 
labour assures the material welfare of the poorer classes of 
society. It is true, as Bastiat says in his Economic Harmonies, 
that in a single day a village carpenter consumes things 
which he could not himself produce in ten centuries ; and it 
is true, as Adam Smith says, that the number of people who 
contribute towards the accommodation of a day-labourer in a 
civilized country exceeds all computation. But this does not 
assure us that the two men are any better off in consequence. 
The point is whether they are well-fed, well-clad, well-housed, 
not whether ten or ten thousand men have had a hand in 
providing the meals, the garments, and the dwellings. That 
famous passage in the first chapter of the Wealth of Nations 
can be applied almost as it stands to the "accommodation" of 
a drunken woman in London : to provide her with cotton 
garments, tea and sugar, new gin, and a penny novelette, the 
whole world may be said to have been set in motion ; and the 
end of this world-wide concert and technical triumph, is a 
spectacle from which we have to turn away horror-stricken. 



By industrial progress we mean improvements in the 
arts of production, that is, a technical change 
enabling revenue to be greater in comparison with 
cost. The technical change consists in the use of 
fresh chemical, or mechanical, or physiological pro- 
cesses, or of fresh motive forces, or fresh materials : 
the advantages of such use being manifold. 

(i) Labour saved, as when by the use of a crane 
in unloading a ship the same result is attained with 
less labour ; or when the same labour gives greater 
results, as by the use in farming of a good rotation 
of crops and good implements. 

(2) Time saved, as when by better application of 
chemistry and mechanics, tanning leather is done 
in a quarter of the time it took formerly, and 
bleaching cotton cloth in an eighth of a quarter. 

(3) Materials saved, as when, by the application 
of the hot blast, the amount of coal used in making 
iron was lessened by about two-thirds. 

(4) Implements saved, as when the processes 
were discovered of tarring and painting woodwork, 
galvanizing iron, making steel rails instead of iron. 

(5) Danger of being killed, maimed, or damaged 


in health lessened, as by the invention of the safety- 
lamp, the automatic brake, the wool-combing 
machine superseding a former unhealthy process. 

(6) Improved quality of goods, as when by 
domestication, grafting, or crossing, plants and 
animals have been marvellously improved, or when 
by mechanical inventions we have become able to 
make delicate and trustworthy instruments for the 
surgeon or astronomer. 

(7) New goods discovered, as maize for food,, 
cotton for clothing, baked clay for dwellings, petro- 
leum for fuel. 

(8) New powers gained by which we can do 
what at no cost we could have done before : register 
time, heat, moisture, raise great weights, strike with 
great force, throw great distances, move with 
greater velocity. 

Such is the technical aspect of industrial progress. 
Turning to the historical aspect, we shall be struck 
with the following points. First, the history of many 
of the greatest inventions is lost in antiquity, such 
as the domestication of animals and the cultivation 
of grain. Secondly, some inventions of the utmost 
value for a particular locality are of little value or 
no use elsewhere. For example, the domestication 
of the camel, and the art of making sweet and 
edible the fruit of the date-palm, were two inven- 
tions of the Babylonians of the utmost value to the 
regions of Syria, Arabia, and Northern Africa, but 
not to Europe or Hindustan. Thirdly, some inven- 
tions, though capable of being wide-spread, have 
in fact been confined for centuries to particular 


countries. Thus artesian wells have been known 
from time immemorial in China, but are only a 
recent invention in Europe. Fourthly, there has 
often been technical retrogression and arts lost and 
not always found again. Thus the objects found at 
Pompeii show that the Romans knew much that we 
imagined till lately were recent discoveries (such as 
a quadrivalve speculum) ; the Egyptians could raise 
a monolith of sandstone weighing over a hundred 
tons, and lower it into position, but how we do not 
know ; the cement of the vast underground cisterns 
of Constantinople from the earliest times of the 
Eastern Empire has required no repair even to this 
day. and this art we no longer possess. Fifthly, 
until the middle of the eighteenth century we do 
not know of any period that can be called a period 
of technical revolution. Archaeology may indeed 
disclose one : the domestication of the vine and 
olive, of the horse and of fowls, the weaving of wool 
and flax, the use of metal implements, may have 
been improvements made in some country in the 
space of a century : but as yet we know not in 
antiquity of any such century. Lastly, we may say 
that up to about the year 1750 the manufactures 
and modes of transport, and the methods, if not 
the plants, of agriculture in Europe, were much 
more like those of Greek and Roman civilization 
twenty centuries before than like those only one 
• my afterwai 

tring the first 1 n hundred I the ( hr.'stian 

the mo ! te< hnical ad-. ance w ei e the new 

and the acclimatization ol the Bilk worm in tin 


sixth century ; the use of wind-mills in the eleventh, of the 
compass in the thirteenth, of printing in the fifteenth century; 
and in the sixteenth the acclimatization of maize in Southern 
Europe, of potatoes in Northern Europe, and the invention 
of knitting stockings and of the stocking-loom. 

But a technical revolution was at hand, and a 
great part of industry was to be transformed from 
what may be called the traditional and empirical to 
the scientific stage. 

Enough has been said in the third chapter to prevent this 
expression being misunderstood, as though every worker was 
now to learn science, and as though tradition and practice 
were now unimportant. The scientific stage of an industry 
only means that the superior officers of such industry must 
be well trained in physical science, and that many of the 
subordinate officers must have some stock of scientific know- 
ledge ; but for the mass of workers such knowledge is no 
more necessary than it was before. 

Why the revolution should have happened at the 
time it did, and why Great Britain should have 
been its principal centre, whence it spread to other 
countries — this complicated historical problem we 
need not try to solve, nor whether physical science 
has done more for industry than industry for it. 
Certainly great technical inventions can be made 
without much knowledge of physical science, many 
leading inventors have been without it, and the 
technical revolution may be said to have started 
without it : but not continued without it ; and 
chemistry in particular, having received enormous 
aid from the superior instruments now provided by 
industrial skill, has been repaying the debt by many 
contributions to invention (bleaching for example). 
Plainly, where riches or honours await those who 
invent or turn inventions to account, this strong 


inducement is a stimulus to man's powers of inge- 
nuity ; and thus where men are linked together in 
happy social relations, enjoying a quiet and culti- 
vated life, there is less probability of inventions than 
amid the restless strivings of discontent, and the 
mobile relations of a society in solution. Hence it 
may be a set-off to the evils of such a society that 
inventions may be fostered, the true benefit from 
which will be first received by the tranquil and 
organized society of future generations. 

Before estimating the gains or losses from the technical 
revolution, let us glance at a few of its leading features. 

In the textile industries about 1750 the inventions of John 
Kay, and Robert his son, doubled the productive power of 
the weavers. These could now use more yarn than could be 
spun by the spinners ; but in 1767, Hargreaves invented the 
spinning-jenny, enabling one spinner to do the work of eight, 
and soon afterwards Arkwright, by the invention of the 
water-frame, a still more efficient instrument of spinning, 
" suppressed the principal manufacturing function of one half 
the human race." (Le Play.) Spinning had been for ages the 
ordinary and characteristic occupation of women, the distaff 
was their sign, and spinster the legal term for unmarried 
women. Meanwhile, an invention by Lewis Paul superseded 
the ancient and lengthy process of hand-carding, and soon 
the advantages of the spinning-jenny and water-frame were 
united in the invention made by Crompton, and called the 
mule. But a machine for weaving instead of the hand-loom 
was wanting till Cartwright, in 1785, devised the power-loom, 
which, when it came into general use in the early years of 
the nineteenth century, struck almost as great a blow at the 
domestic industry of men, as the spinning-machines had 
already done at that of women, and changed this great branch 
of industry from hand-work into machine-work. Further, 
before the eighteenth century was over, bleaching and printing 
cloth received such improvements, thai bleaching could I": 
done more than thirty times as quickly, and printing, in some 

u)d be done with nearly a hundred hi Labour; 

while one greaf material of the textile indu b able to 

btained in sufficient abundance by the cotton-gin, the 

.-itioii of Whitney, the American, in ly^-'- Above all, the 

m-engine was non applied in textile factories, and they 


could quit the mountain-valleys and running streams, and 
take their place on the coal-fields. 

In the iron trade, about the same momentous period, the 
middle of the eighteenth century, the use of coal for smelting, 
instead of wood, was first successfully practised by Roebuck's 
method, and steam first successfully used as a motive force 
by the discoveries of James Watt, who took out his first 
patent in 1769, since when there has been a wonderful 
partnership between coal, steam, and iron, not yet broken 
up, though threatened by electricity. One discovery or im- 
provement, followed another in these three agents of pro- 
duction : the rolling-mill and puddling furnace of Henry 
Cort, the slide-rest of Maudslay, the safety-lamp of Sir 
Humphrey Davey; the application of steam to locomotion at 
sea by Bell and Fulton, and on land by Stephenson ; the hot 
blast of Neilson, the hydro-electric machine of Armstrong, 
and those processes of Bessemer enabling steel to be made 
cheaply, so that now we live in a steel age rather than an 
iron age. 

In agriculture also several notable improvements were 
made in the eighteenth century, notably in East England, the 
restoration of the practice of marling, and the introduction 
of a crop of turnips instead of fallow, resulting in the 
excellent four years' rotation of turnips, barley, clover, and 
wheat. The breeds also of sheep and cattle were improved, 
and a better provision made of winter fodder. These im- 
provements indeed were not a revolution; they were but 
empirical, and agriculture remained of the same character as 
when Mago wrote his famous text-book of agriculture for the 
Carthaginians, and Columella for the Romans ; and probably 
the contemporary Chinese were quite as forward as the best 
English farmers as far as we can compare such different 
crops and methods. But as the nineteenth century advanced 
a real revolution was to be witnessed in Europe and America 
from the application of mechanical and chemical science to 
agriculture, giving new implements, sometimes even new 
motive power, new methods of treating the soil mechanically 
and chemically, new methods of feeding live stock and of 
raising plants. And this revolution is not yet at an end. 

The gain from technical improvement is seldom 
capable of exact, often not even of approximate 
measurement ; and sometimes we are in doubt, so 
complicated are the issues, so wide-spread the rami- 
fications of cost, so contrary the interests of different 


persons, whether there has really been a net gain, 
and thus whether the technical change deserves the 
name of an improvement at all. But though much 
is obscure, we can at least see enough not to be 
misled by the rhetoric of optimists on one side, or 
of pessimists on the other, and to be able, if we 
cannot solve the problems, at least to see what are 
the problems to be solved. 

That the technical revolution has resulted in 
an immense increase of man's powers in certain 
directions can be seen by examples and sometimes 
even expressed in figures. Coal can now be put 
into ships at the rate of 400 tons an hour ; hydraulic 
cranes are made that will lift 160 tons' weight at a 
time ; we can easily travel by sea at the rate of 
15 miles an hour, and 50 by land; printing by 
machinery has been so improved, that each man 
each hour can print some 3,000 copies of a news- 
paper, and that each week-day morning the news- 
papers issued from London would stretch over 
about a thousand miles ; electricity has enabled 
the most remote regions to be in almost instan- 
taneous communication ; the new facility of pro- 
ducing steel has given us a material twice the 
strength of iron, not fibrous, but with full strength 
in every direction, as tough as leather, and nearly 
as hard as a diamond, so that Bessemer' S invention 
been reckoned, and probably reckoned too low, 

to have added as much to England's productive 

the labour of a hundred thousand Oil 11 : 

the force of the steam-engines In England Is said 

to be more than twenty times the mux ular f< 


of the inhabitants, that is to say, we should have to 
number 600 million inhabitants instead of 30 million 
in order to exert that force without the steam- 
engine ; it is said also that efficiency in cotton 
manufacturing has increased more than 300-fold ; 
it was reckoned at the Exhibition of 1851, that in 
the twelve previous years half the expense of the 
main operations of husbandry had been saved by 
mechanical inventions ; and if this was an exaggera- 
tion at the time and place, it is probably an under- 
statement of the advantages got in modern America 
by agricultural machinery, where by the plan of 
interchangeable parts, all duly numbered, any 
damage can be quickly repaired, and one great 
obstacle to the use of agricultural machinery is 

Such are specimens of gain from the industrial 
revolution : many others might be added and illus- 
trations drawn from many countries. But enough 
has been said to raise the very serious question why 
after such a brilliant advance we are not better off, 
why so many are hard-worked, ill-clad, and ill- 
housed, so many tens of thousands of people even 
in Great Britain are bowed down with abject 
poverty, and if we reckon our subject countries, so 
many tens of millions. And the question is all the 
more striking when we remember the profound 
peace which has prevailed in the Empire with little 
serious interruption for the greater part of a century. 
For if we compare societies which without a technical 
revolution have enjoyed for a long time a similar 
political tranquillity, for example the Roman Empire 


at the accession of Commodus, the dominions of 
the King of France at the death of St. Louis, or the 
German Empire at the accession of Maximilian I., 
the objects of enjoyment in those societies seem 
little if at all inferior to our own. I am speaking, 
observe, of their material not of their moral condi- 
tions, and the question, keeping merely to the level 
of bread and butter, is why with such wonderful 
superiority in our means of production, with the 
terrific heat of our furnaces, with the tremendous 
strokes of our steam-hammers, the objects of enjoy- 
ment that result from all this energy appear so 
feeble, and it is open to doubt whether on the 
whole our food and clothing, our houses and 
furniture, our baths and pleasure-grounds, our 
adornments and decorations, are superior to those 
of those former periods of peace and prosperity. 

There is clearly a difficulty to be explained ; but 
with a little care we can find a reasonable explana- 

First, indeed, let us beware lest, in trying to escape from 
the difficulty we fall into snares. 

Pitfalls. (1) To suppress the difficulty by suppressing 
facts, ignoring past history, or else blackening it, or making 
profitless comparisons as between civilized and uncivilized 
peoples, between modern Europeans and tribes of savages, 
between countries after years of peace and power, and 
countries in the throes or on the morrow of a desolating war. 
Such procedure, though very common during the first half 
of the nineteenth century, and not rare in the second half, is 
very irrational. 

(2) To cancel the advantages brought by the technical 
revolution by making it the one or the main 1 ause "I mosl of 
the evils we suffer : of misdirected production and consump- 
tion, of dishonesty and waste, of Btunted facultie . oi < • v 1 1 
relations between ma tei ad men, rich and poor: 
though cruelty and oppre ion were ae* phenomena, and as 


though, when the iron entered into men's souls, it was the 
senseless metal of driving-wheels or drilling- machines that 
was to blame, and not rather the foreheads of brass and the 
hearts of steel. 

(3) To admit, even exaggerate, the great material gain to 
production by modern inventions, and to explain the non 
sequence of general felicity by the unfairness of distribution, 
the few having been able to divert the vast surplus into their 
own pockets, whilst they leave the many no better or rather 
worse off than before. There is some truth in this view, for a 
great part of the extreme misery among ourselves is due to bad 
laws and neglect of duty by the rich and powerful, and thus 
may be said to be due to unfair distribution. But then if 
that extreme misery were removed, nay, if all the national 
wealth were equally distributed, even then, apart from other 
difficulties, the difficulty before us would not be met, for each 
man's wealth would be little, if any, more than the average 
enjoyed by the masses in those other periods of prosperity; 
and we should look in vain for that great well-being which 
those great technical triumphs had led us to expect. 

(4) To admit the gain and explain that the cup of general 
happiness has been snatched from our lips by over-multiplica- 
tion : if only population had been restrained we might have 
enjoyed the draught ; but now all that these grand inventions 
have done is to allow a more numerous, but not a more easy 
population. This error also is a half-truth and thus all the 
more delusive. The technical revolution has indeed been 
accompanied by a vast increase in population which could 
scarcely have come into existence without it, or would have 
had to live a harder life through the action of the law of 
diminishing returns. But then, had there been no great 
increase in population, it is highly improbable that the 
technical revolution would have proceeded ; and in any case, 
artificial restraint to population, as we shall see in a later 
chapter, is the way not to an easy happy life, but to miserable 
toil and the impoverishment of families and of nations. 

The real explanation of the difficulty is that 
many of the grandest inventions really serve our 
welfare much less than they seem, and that many 
losses and injuries have fallen on us, some due to 
the technical revolution itself, which this revolution 
has had to make up for. When the inventions have 
been duly appraised and the compensations duly 


allotted, we shall not be surprised that so little net 
gain is left over. 

An improvement in part of the cost may appear 
as though it were a saving in the whole ; but if that 
part be but small, the greatest improvement in it 
must give but a small result. Thus if one twentieth 
part of the price of bread is due to the cost of 
grinding corn, the greatest possible improvement 
in the miller's art can never reduce the price of 
bread by quite so much as five per cent. Again, 
the most magnificent improvements in the means 
of production are of little service to the great body 
of the people, if the objects of enjoyment, which 
are the end of those means of production, are 
items absent or insignificant in the budget of the 
poor. Thus if the cost of turtle-soup, tennis racquets, 
steel-pens, blotting-paper, cinnamon, and arrow-root 
be reduced more than one hundred to one, the saving 
in the total expenditure of a British workman will 
be reduced by less than one in one hundred. 
Further, the most conspicuous technical advance 
has been in means of communication, in steam- 
ships, railways, telegraphs, telephones, admirable 
inventions and giving many advantages to pro- 
duction, but still in the main having as their 
principal effect to enable men to live: dwelling in 
groups and fed from a distance, rather than to 
live in better dwellings or to be better 

And indeed tin; icthing more: these in- 

ventions hav< en a tremendous impetus to 

I production and misdii e< ted con- 
sumption, in particular they have been the chiel 


occasion of that concentration in great cities which 
is one of the gravest difficulties of our time, our 
greatest disadvantage compared with the past. 
Hence in this great department of invention there 
is much loss to be deducted from the gain. 

By forgetting the great fact of misdirected consumption, 
we are liable to look on changes in consumption as improve- 
ments when they are mere changes, or even changes for 
the worse. Thus the vast consumption of tea and sugar 
in England made possible by the technical revolution, is 
undoubtedly a great change from the habits of one hundred 
and fifty years ago ; but whether a change for the better is 
dubious ; and the vast use of tinned provisions in the United 
States is probably a change for the worse. Indeed, the 
inventions by which food can be preserved for long, and 
transported from afar, may be liable to the drawbacks of 
fostering a concentrated instead of a scattered population, 
and eliminating better food to make way for worse. Thus it 
is by no means pure gain that fishmongers, by the use of ice, 
can now keep their fish so long, or that in 1890 some two 
hundred million pounds of beef and mutton were able to be 
imported into England, a result of the introduction eleven 
years before of the Bell-Coleman machine for preserving 
carcases cold in a voyage through the tropics. 

Further, by an irony of fate, not only has 
chemical science been degraded as an instrument 
of adulteration, and mechanical science to construct 
the flimsiest of buildings, but the grandest technical 
triumphs have been in engines of destruction, for 
example, a no-ton Armstrong gun taking fifteen 
months of day and night work to make, composed 
of five thicknesses, holding a charge of goo lbs. of 
gunpowder, driving a shell weighing 2,000 lbs. at a 
velocity of 2,000 feet a second, and having a range 
of about 14 miles. Hence the very progress of 
invention has imposed on each nation that values 


its national existence a heavy burden of costly 

We have, moreover, several other deductions 
to make for drawbacks incidental to the technical 
revolution : pollution of streams by manufacturing 
refuse and destruction of their use for drinking, 
washing, or fishing ; pollution of air by vapours, 
gas, and smoke, with the consequent destruction 
of vegetation and need of endless cleaning and 
renovating of garments, dwellings, and furniture ; 
occupation by railways of a considerable surface of 
land often the best for agriculture or for habitation. 

In England and Wales, with their 14,000 miles and more 
of railways, nearly two-thirds with double track, some with 
treble, or quadruple track, and much in cuttings or on embank- 
ments, besides numerous station-yards and sidings, we may 
perhaps reckon that about eleven or twelve acres are occupied 
by each mile of railway, and thus some 250 square miles out 
of the total of 58,000, or one square mile in every 232, with- 
drawn from cultivation. 

Then, again, by the technical revolution, the 
conditions under which industry is carried on are 
often more unpleasant, unhealthy, and dangerous 
than before. True that some unhealthy and 
laborious occupations have been superseded in the 
course of industrial progress; but more have been 
introduced. True that in recent years there has 

□ a great advance in sanitary precautions (fans, 
for example, and screens and ventilators) ; but then 
much of this is merely undoing the previous mischief 
of the new modes of product ion, and is not a creation, 
but a re toration of healthy work. True again that 
the immen e bulk of the phj sical bi< li in 


fact have accompanied the technical revolution are 
to be attributed not to machinery, but to man, for 
example, the overwork of the factory operatives, 
men, women, and children, that has been one 
great disgrace of the nineteenth century. But there 
is a residuum of physical mischief which no 
efforts of science and humanity seem as yet able 
to remove : risk of injury to life or limb amid 
the complicated machinery ; damp, as among the 
bleachers, unlike their old conditions when the 
cloth was hung out to bleach in the sun ; night- 
work unavoidable, as on railways and at blast 
furnaces which must never be extinguished ; great 
heat, as in foundries and glass-works ; noise, as in 
cotton factories and iron shipbuilding; and above 
all, the constant close attention — the continuance 
of effort — which work requires where the worker 
has not the control of the implements, but rather 
the implements of the worker. 

No wonder, therefore, that at Birmingham, a great centre 
of the hardware manufactures, though the operatives are 
well-housed and get high wages, premature old age is frequent, 
and men collapse and die at the age of fifty-six or fifty-eight, 
worn out hy the " drive," or " high pressure," of their work. 
This is the real evil, and not that work has become more 
monotonous and automatic than of old, or that it much 
matters if it has : on which point we have already spoken in 
the last chapter. 

Another question is whether we are to make a 
deduction on the score of the loss or the deadening 
of the artistic faculties of the masses, and the 
spread of ugliness and the commonplace, instead 
of all products being more or less a work of fine 
art. This question is complicated and contro- 


verted : let us only observe that the growth and 
decay of the sense of beauty seems from the 
historical evidence an unaccountable marvel ; that 
ugliness has superseded beauty in cases where there 
has been no accompanying technical revolution to 
bear the blame ; and that compared with whether 
the poorer classes are secure of their daily bread 
in happy homes of piety and affection, or not, the 
shape of their utensils or the colour of their 
garments are not matters of serious account. 

A further deduction has to be made from the 
gain from technical improvements, to cover the loss, 
temporary indeed, but still a loss, from the decline 
in the value of property and of faculties that cannot 
be adapted to the new mode of production ; and the 
more valuable and more specialized that property 
and those faculties were, the greater the loss. As 
a fact, in trade after trade the old skilled handi- 
craftsmen have been superseded, and been unable 
to earn their living ; but the terrible misery that has 
followed, as that of the hand-loom weavers in the 
first half of the nineteenth century in England and 
India, is not a necessary consequence. For a wise 
Government can hinder such changes being sudden, 
and can give to these victims of a change that is 
for the general good their well-deserved compen- 
sation, so that the unavoidable loss may be 11 1 it i- 
1 and endurable. Where indeed society is 
disorganized, there truly enough whole groups 
of workmen may have good cause to t<> the 

utmost the introduction of machinery; and mastei ■ 

may be stimulated to invent i< a mean 


quelling the insubordination or destroying the inde- 
pendence of their workmen, as in the struggle 
at the beginning of this century to introduce an 
improved rotary printing-press in London, and 
labour-saving frames into the hosiery trade of 
Nottingham. In more recent times also many 
strikes have become the parents of improved 
machinery, and improved machinery the parent 
of strikes. But this is not part of the nature of 

The charge against machinery of " injuring the labourers 
as a whole " by diminishing the " demand for their labour," 
is a confusion. Machinery enables greater production, and 
thus a greater possible population (sometimes expressed by 
the phrases, a greater field for employment, or a greater 
demand for labour). It can only be otherwise where there 
has been either misdirected production, so much labour spent 
in making preparatory wealth (as railways), that there is not 
enough enjoyable wealth (as food and clothing) for a time ; 
or where the introduction of machinery has been allowed to 
injure the distribution of wealth, and cause a few to profit by 
the misery of the many. But this last evil is not peculiar to 
the introduction of machinery, and never necessary to it. 
Plenty of other occasions occur to plunder and oppress ; 
and the artificial lessening of the intensity of production 
by those who have mastery over much of the means of 
production, with the consequent depopulation, of which 
England, Scotland, and Ireland have at different times been 
the theatre, is a dreadful spectacle indeed, but is not to be 
laid to the charge of technical progress, and therefore is not 
a deduction to be made when we are reckoning the gain from 
that progress. 

Finally, to complete our explanation of the diffi- 
culty we are considering, we must remember that 
we have to draw on the funds of technical progress 
in general, and that of the last 140 years in parti- 
cular, to make us compensation : compensation for 
the law of diminishing returns, on which enough 


has already been said, and compensation for certain 
injuries which the earth has received, principally at 
the hands of man. These injuries can be put as 
follows under four principal heads : 

(1) Exhaustion of the soil by agriculture, the 
spendthrift process of taking more from it than is 
restored to it, and thus lessening its fertility. This 
evil, known as exhaustive farming, earth-butchery , or 
Raubbaic, may be a serious injury; but in such a 
case the exhaustive farming is generally quite as 
much a consequence as a cause of poverty and 
suffering, as for example among the negro slaves in 
the United States and the tenants-at-will in Ireland 
during the first part of this century, or again in 
British India, where the tax on salt, combined 
with the lack of trees, by reducing the number 
of cattle and driving the natives to use dung for 
fuel, impoverishes the soil. Hence the remedy 
in all such cases is quite as much moral as tech- 

In England it is otherwise; for by our senseless system 
of sewage, by which the greatest source of phosphoric acid 
is sent into the rivers and seas, combined with a highly 
intensive system of agriculture, and absurd fattening of 
beasts, there would have been the extremity of earth - 
butchery had we not for years past been importing goods 
far in excess of our imports, and had we not for years past 
. ransacking the world for fertilizers: guano, coprolites, 
bone-dust, and bones, even the mummied remains of the 
ed cats of Egypt, which had rested 3,000 years undis- 
turbed. No wonder we li.-ive alarmists who tell us the earth 
her primal fertility: forgetful thai tin- sterilization 
is artificial; that each hour of n 1 and eacfa bowei of rain 
y ; and that though cultivation cannot be kept up 

ad infinitum at a very high pitch of intensity, it can be at a 

low pitch* 


(2) Exhaustion of minerals. Here the process 
of compensation by improvement is very clear ; for 
although mine after mine, and deposit after deposit 
has been exhausted, from the silver mines of Attica 
to the tin mines of Cornwall, still, by the discovery 
of new stores of minerals, of new methods of 
mining, and new uses for the produce, the world 
was never so well supplied as at present, and is not 
likely in any future that we can foresee to be less 
well supplied than at present. But the case is very 
different for particular nations, and the vast stores 
of wealth that England has in her coal-fields, Russia 
and the United States in their petroleum springs. 
Chili in her nitrate deposits, may be exhausted in 
the comparatively near future. 

(3) Extermination or diminution of useful 
animals and plants, and spread, often a correspon- 
ing spread, of noxious ones. For example, the sea- 
cow has been wholly extirpated, the seal, walrus, 
sea-otter, beaver, bison, and various kinds of birds 
grievously diminished ; and by this destruction of 
birds the growth of mischievous insects has been 
fostered. Europeans have introduced rabbits into 
Australia, and thereby ruined thousands of acres 
of pasture-land. The voracious and prolific brown 
rat (mus decumanus), appearing on the lower Volga 
in the earlier part of the eighteenth century, has 
since then conquered Europe, and travelled in ships 
to the four quarters of the globe ; the horrid weed 
that is the pest of our English rivers, the Anacharsis 
adsinastrum, is an importation from America. 

(4) Physical injury through the destruction of 


forests. This is distinct from the destruction of 
particular kinds of trees, like the cedar of Lebanon 
or the Kauri pine of New Zealand, and is by far the 
most terrible injury the earth has received at the 
hands of man. Millions of square miles have been 
turned into a desert, millions more have been 
grievously injured, by the destruction of woods 
on the slopes and crest of the mountains and along- 
the shores of the sea. Alternations of flood and 
drought, watercourses empty or overflowed, hill- 
sides stripped of soil, valleys choked with stony 
debris, lowlands turned into malarious swamps, 
bitter or salt-laden winds sweeping unchecked over 
the land to the ruin of vegetation, sterilizing sand 
or barren sea swallowing up fertile meadows, swarms 
of devouring insects with no birds to keep them in 
check : such have been according to local circum- 
stances the various results of the destruction of 
the woods by the perverted industry of man. 
Almost all the countries round the Mediterranean 
Sea, Hindustan, Northern China, South Africa,, 
parts of the United States and of Spanish America,. 
Scotland, and Ireland, have all suffered from such 
destruction. Some of it is an old story, like the 
destruction of the forests on the east coasts of 
Scotland during the English wars of the fourteenth 
century, so that the great sand-bank of Moray and 
Aberdeenshire covers a land once fruitful and 
inhabited. Some is more recent, like the un- 

<ling of Ireland, notably in the seventeenth 

century, whereby seven million acres of her surfai e 

:i converted inti > nak< l rock i >r p l1 



morass ; an " Irish bog " being as much man's 
doing as London Bridge. But most of the destruc- 
tion has been accomplished precisely during the 
course of the technical revolution, which has fostered 
the evil in several ways, chiefly by making easier 
the manipulation and transport of timber, and by 
using up whole forests for railway-sleepers. " The 
evil indeed is now recognized by all wise statesmen ; 
in many places further destruction has been 
slackened or arrested, in some even great works 
of reparation effected ; and the spread of metal 
sleepers seems likely in the near future to lessen 
the great demand for timber. Still this does not 
take away the tremendous loss the world has 
suffered and the need of a great compensation. 

An excellent law in the United States allows a settler to 
have 1 60 acres extra if ten of them are planted within two 
years with forest-trees ; and an excellent custom there estab- 
lishes an Arbor Day, or general holiday, when all the schools 
are closed, and all the inhabitants plant trees. 

Observe that where the destruction of woods is followed 
by none of the serious climatic evils mentioned above, never- 
theless there are serious other losses which we must deduct 
from the seeming profits of the new use of the land : loss of 
ground for healthy exercise and admirable sports ; loss of the 
materials for building and reparation and fuel ; loss of manure 
and litter ; loss of food for beasts, notably for swine. Because 
such losses have, as a matter of history, fallen chiefly on the 
poor, they have been too often overlooked. 

Enough has now been said to explain the 
seeming difficulty why the inhabitants of England 
after such long prosperity and after such a magni- 
ficent series of inventions, are not much better off 
materially than they are : for we have reduced the 
estimate of the technical revolution to the level of 
reason, and have shown the losses for which it has 


had to serve as a compensation. The question is 
no doubt complicated, and nothing easier according 
to mental bias or the exigencies of controversy than 
to make an ex parte statement and distort alike the 
picture of the present and the past. But the reason- 
able view seems to point to a certain equilibrium in 
the physical condition of civilized man, all sorts of 
losses being balanced by all sorts of gains. And 
if this seems a more favourable view than is to 
be justified from the preceding chapters, let us 
remember that industrial progress has greatly 
facilitated the spread of civilized man over the 
globe, and thus has favoured that dispersion on 
which much of our welfare depends. 



This chapter is of the nature of a corollary to the 
four chapters preceding ; for, given that the pro- 
ductive capacities of the earth and of man, given 
also that the organization and progress of industry 
be of the character there set forth, certain conclu- 
sions can be drawn relating to the locality and 
dimensions of industry : and this chapter has to do 
with those conclusions. 

That particular goods are produced at particular 
places and not everywhere is a fact too obvious to 
need illustration ; but the reasons are not always 
obvious. It is easy indeed to see that the extractive 
industries (mines and quarries) cannot exist where 
there is no matter to be extracted, nor plants be 
cultivated which the soil and climate will not 
tolerate. But this tells us little : does not explain 
for example why beautiful building materials in 
Ireland lie unused, while the clay of the Thames 
valley is being converted into countless millions of 
ugly bricks ; nor why so much beet-root is grown 
in France, so little in the United Kingdom ; nor 
why cotton manufactures are concentrated in certain 
counties of England and hosiery in others. Such 


facts, indeed, can be explained ; only the causes 
are various and often act on each other and in 
different ways, so that it is difficult to foretell the 
localities of industry in the future though we may 
explain them in the past. 

Thus, other things being the same, the place 
of enjoyment of the finished produce — the domicile 
of the consumer — is the place where all industries 
alike will be carried on. But then other things are 
not the same ; for besides the physical diversities 
of the earth already spoken of, some goods are 
much less easily carried than others. Hence, 
clinging round every town and village and along 
every line of communication are likely to be zones 
of land devoted to particular branches of industry, 
the product of the inner zones being the least 
transportable, and of the outer zones the most 

For example, the production of fresh fruit, fresh vegetables, 
fresh flowers, and fresh milk in Northern Europe and America 
are suburban industries, whereas growing wheat or breeding 
cattle can be done far away : only remember, economic 
distance is counted not by miles, but by the quickness, 
uninterruptedness, and safety to men and goods of the 
means of communication ; and also that the regularity of 
these zones may be broken by physical diversities; and 
that, moreover, the domicile of the consinm r may itself 
have been originally determined by these diversii 

ain, the localities of the various processes of manu- 
facte the ease or difficulty with which the 

raw material, the finished product, and the a< 

production can be transported ; and the place will b< elected 
which ceteris paribus will allow the minimum c< 
So the neighbourhood aw-mill the raw 

material; large towns for cabinet-makii 

coal-bi multitude "i modern indu .:• 

..-1 whicfa i • le I table than th.-ii 

For it i cl 


cotton and wool to coal than vice versa ; and thus the textile 
factories are not among the cotton plantations or on the 
sheep-downs, but over the coal-beds. 

Where products are a joint result like beef, tallow, and 
hides, or like wheat and straw, a fresh complication is intro- 
duced. Similarly, where crops are grown not so much for 
themselves as to prepare the ground for others. 

Further, it is an advantage, quite distinct from 
proximity to consumers or to materials or to 
accessories, for industries to be concentrated in 
particular places, for example, the lace and hosiery 
manufacture in the Nottingham district, though it 
might have been located just as well round 
Manchester, or again lock-making in Staffordshire, 
though it might have been located just as well in 
Yorkshire. This kind of concentration is what is 
called localization of industry in the strict sense. 
The grounds for it are manifold. There can be 
better technical training where many of the same 
trade are congregated together, more mutual help, 
greater likelihood of inventions, more use in common 
of markets, means of carriage, and machinery, and 
greater growth of subsidiary industries, such namely 
as supply materials and utilize refuse, to do which 
for a single factory would not be worth while. And 
in modern industry, especially where machinery is 
elaborate, it is a great gain to have close at hand 
those who can at once repair or replace any damage 
or loss of that machinery. Hence, although localiza- 
tion is conspicuous in past economic history, different 
villages or towns having each as their speciality 
some particular trade, it is more conspicuous now 
when not merely thousands but millions of customers 
are supplied from one centre. 



This being so, it is clear how great is the 
advantage which a place gains by having the first 
start in an industry : it may even become the centre 
of a vast world-production, when a dozen other 
places would have done just as well had they only 
been the first in the field. No wonder, therefore, 
that Governments, which are rightly interested in 
the wealth and population of particular regions, not 
of the whole world, should endeavour to secure each 
for its own country the benefit of the law of increas- 
ing returns by the localization of industry. Hence, 
protective laws (to be considered in the chapter on 
international trade in the Second Book) ; hence 
also the fostering of immigration to anticipate the 
slow (absolute) growth of a scanty population and 
to seize golden opportunities before it is too late. 

Apart from protection, the localization of industry can be 
affected by the fiscal policy of the Government, when it aims 
at getting a revenue from taxes on particular goods or 
industries. The restriction of opium-growing to certain 
localities of India, and the prohibition of tobacco-growing 
in the United Kingdom, are instances. Further, the abuses 
of feeble or tyrannical Governments, anarchy, injustice, or 
arbitrary taxation, will be far less injurious to simple and 
cheaply worked industries than to those that need elaborate 
organization or costly apparatus. 

A word must be added on one result of the 
great changes during the nineteenth century in the 
methods and facilities of transport. Other chan 
and improvements have indeed had in previous 
times a great effect on the locality of industry : new 
roads have opened new sources of supply, and 

1 '1 the importance of the old, and the chan 
of trade routes in the world's commerce have I 


a striking chapter in history ; the general result 
being that some districts or countries have gained 
and others lost, the loss being rather less than the 
gain. But the revolution in transport by the intro- 
duction of steamships, and above all of railways, 
has done more than this, and produced as a 
portentous effect the concentration of population in 
large towns instead of being scattered in villages or 
homesteads over the country. This dispropor- 
tionate growth of towns is one of the most striking 
features of the nineteenth century, and is seen in 
every country where the new methods of transport 
are much used : in the United Kingdom, in France, 
Germany, Belgium, in the United States, and in 
several of the States of South America and 
Australasia ; sometimes the rural population has 
even absolutely decreased as in England and 
France, not merely relatively to the urban popula- 

The reason for this great phenomenon of urban 
concentration is simple. It is not that cities are 
much more attractive than before, but that the new 
means of communication have removed the obstacles 
to the operation of that attraction. Religious, 
political, legal, medical, scientific, literary, and 
artistic business all draw people to dwell in towns 
where much of it alone can be transacted. Again, 
reasons of pleasure are potent magnets, both good 
pleasure, as to be among one's friends, and bad 
pleasure, for which great cities offer much more 
abundant and above all much more secret oppor- 
tunities than the country. Finally, the advantages 


of concerted labour make towns the seats of industry 
unless there is some grave drawback. The former 
drawback to both industry and residence was the 
cost of conveying food and raw material : the 
country might be dull, but it was cheap. The 
revolution in transport has not wholly removed this 
drawback to great cities, but has much lessened it. 
The result has been urban concentration bringing 
evils not indeed wholly new in themselves, but 
wholly new in their magnitude, and threatening to 
cancel all our gains from highly concerted labour 
and from industrial progress. What the remedies 
are we must wait for a later chapter to examine : 
enough here, that the evils are remediable and the 
remedies efficient, even though the efficiency of the 
means of transport was to become twice as great 
as it is now. 

Turning from locality to dimensions we are met 
with the difficulty of how industrial dimensions are 
to be measured. The very terms industry and 
business are not simple, nor is it simple what is 
meant by production on a large scale (la grande 
Industrie, der Grossbetrieb), and by production on a 
small scale (la petite Industrie, der Klcinbetrieb). 

First let us take the term an industry to mean 
an aggregate of labour and property devoted to the 
production of wealth ; and since production is not 
a single and uniform process, there can be as many 
indu there are varieties of production. How 

to classify them is merely a matter of convenience : 
in the present condition of Europe and America 
most convenient is, perhaps, to make f«>ur 


main heads : (A) organic industries, dealing with 
living plants and animals, and subdivided into 
horticulture, agriculture, stock-raising, forestry, and 
fishing ; (B) extractive industries, such as mining 
and quarrying; (C) manufacturing industries divi- 
sible into the four subdivisions, the textile and 
clothing trades, secondly metal-working, thirdly, the 
building trades, and fourthly, all the rest under the 
title of miscellaneous ; (D) commercial industries 
subdivisible into carrying by land, carrying by sea, 
banking, wholesale dealing, and retail dealing. And 
each of these subdivisions, especially in manufactures 
and commerce, can be subdivided again as long as 
the labour and property is sufficiently distinct from 
that of others as to allow of separate management. 

Now the test of industrial dimensions, of the size 
of industry, or of the scale on which production is 
carried on, is the amount of capital and labour 
under the effective management of a definite person 
(whether an individual or a body), and used for a 
definite operation or set of connected operations. 
And according as this amount is large, small, or 
intermediate, we can say that there is industry on 
a large scale, or on a small scale, or on an inter- 
mediate scale. 

The term business can be applied to this unit of 
industrial operation, the unity being based as already 
said on unity of management. 

This definition does not escape all difficulties ; for what 
constitutes management or direction is not always clear, and 
at what point a man is so controlled by others as no longer 
to have the effective management. Thus if the manager of 
a boot factory lessens the work done on the premises, but 


gives out more leather to be made into boots at the workmen's 
homes, and turns out twice the number of boots he did 
before, is this an increase or a decrease in the size of 
industry ? Again, is a large estate let out to metayer tenants, 
as often in America to negroes, to be called agriculture on a 
large scale because the landlord exercises considerable super- 
intendence over the whole estate : or on a small scale because 
each negro manages his own little farm ? And if a brewer 
owns fifty separate public-houses worked by publicans who 
tremble and obey him : is this to be called trade on a large 
or on a small scale ? Only observe it is of little consequence 
what answer we give : but of great consequence that we be 
well-informed of the real relations of the different classes of 
society whatever names we give to them and their industries. 
We must be careful not to confound the dimensions of 
the property of a particular person with the dimensions of a 
particular business ; for though influencing each other they 
are distinct, and though often in practice they come to the 
same thing, often they do not. Thus an Irish landlord may 
own a hundred small farms : this does not make them one 
large farm ; a thousand Lancashire shareholders may own 
one great joint-stock factory at Oldham : this does not make 
the great factory a thousand small ones. 

Let us now aim at somewhat greater precision 
touching the terms small and large. A small business, 
whether farm or workshop, is where the whole of 
the management and the whole of the manual work 
can be done by a single family, and is sufficient for 
their entire occupation. A large business is where 
the management alone entirely occupies a man of 
the higher classes, whether it be the management 
of a large farm, or ship, or factory, or bank, or 
warehouse. Between the two are many degl 
that can be called smaller -intermediate or larger- 
intermediate according as they approxiniat mall 
or large; and then beyond on one side we 

miniature business which does not occupy the whole 

time of a family; on the other si 


requiring for the mere management the exclusive 
attention of more than one highly trained man. 

Observe that many farms, commonly spoken of as large, 
would not come up to this standard, and would have to be 
spoken of as larger-intermediate or even as smaller-inter- 
mediate. " A so-called large farm does not employ a tenth 
part of the labour which is collected in a factory of moderate 
dimensions." (Marshall.) And size is not measured by area : 
the more intensive the cultivation, the smaller the area needed 
for a " large " farm. Thus most of the American occupiers 
of the 1 60 acre farms in the West, are only small farmers, 
so little intensive is the cultivation, and they correspond to 
the peasant farmers of France and Germany ; whereas a 
farm of 160 acres in Middlesex or Kent cultivated with the 
intensity proper to the surroundings, would certainly not be 
business on a small scale, but at least on an intermediate, 
probably a larger-intermediate, scale. 

Most of the advantages already given of con- 
certed labour, and which we need not repeat, will 
apply to a large business much more than to a 
small one. The saving in the use of machinery 
and the utilization of varieties of capacity are, 
perhaps, the two most conspicuous advantages of 
production on a large scale ; and since the technical 
revolution has in a great many branches of in- 
dustry introduced scientific training and elaborate 
machinery where formerly simple training and 
implements were in use, the transformation of the 
dimensions of industry has been witnessed in many 
countries during the nineteenth century. Small or 
smaller-intermediate industries have been super- 
seded by larger-intermediate, large or colossal, 
notably in the textile trades, in iron-works, and in 
means of transport. Why the transformation has 
not been more universal is easy to understand if 


we recall some of the limitations and drawbacks to 
concerted labour. 

Thus, great as the improvement has been in our means of 
transport, many things remain so hard to carry, that unless 
they are produced among a dense population they must for 
lack of customers be produced on a small scale ; so in the 
building trades amid rural and thinly-peopled districts, and 
in the quarrying or brickmaking preliminary to building ; and 
only in a very large city could the manifold work known as 
repairing and doing odd jobs be concentrated in the hands 
of large contractors. Again, the risk or certainty of mis- 
directed production if an industry is on a large scale, may 
keep it small or intermediate, as in the superior kind of 
tailoring, dressmaking, and bootmaking, where there can be 
no wholesale production if the customers are to be suitably 
arrayed. In other cases the greater risk of dishonesty and 
the need of keeping everything under the master's eye is 
often decisive in preventing great factories for work in gold, 
silver, and jewellery. Then, again, the risk of carelessness 
unless the person primarily interested himself does or super- 
intends every detail, sometimes gives a decisive superiority 
to small production. So notably in garden cultivation and 
where the careful treatment of trees, like olive, almond, fig, 
mulberry, orange or lemon-trees, sometimes too of vines, is 
essential to a large crop ; or where the soil being kept up by 
terraces or fertilized by irrigation, requires to be dealt with 
rather by the square yard than by the acre. And further, 
there are some special advantages of industry on a small 
scale where it enables objects of enjoyment to be utilized as 
means of production, and non-industrial labour to be utilized 
as industrial, thus killing two birds with one stone. So 
notably by the dwelling-house being used as a workshop, the 
kitchen fire and domestic light as an industrial force and 
illuminant, the meetings of families or neighbours as an 
occasion of useful work, days of extra work among peasants 
in various parts of the globe being thus converted into festival- 

: and all this with great saving of buildings, fuel, I 
and exertion. The household aceonnt-books also will snitiee 
for the very simple book-keeping that small industry requil 

and in agriculture th< >r ought to be) an imm< ving 

in th : • : manure being secured gratis, a saving oi <'<stk 
and often wasteful system of draining, a savin" "t the whole 
appa and waggons, that quagmire oi 1 pense: 


The question, therefore, of dimensions is one of 
extreme complexity, and we have to study a hundred 
peculiarities of time, place, and industry before we 
can decide what in each case is to be desired. And 
unfortunately we cannot assume that the better 
dimensions will eliminate the worse ; for in fact 
the continuance or introduction of a particular 
scale of industry may be due to bad reasons and 
not to good reasons. Thus small farms may be 
supplanted by large, not in order that produce may 
be increased, but that certain persons may get a 
larger share of the diminished produce, as in Italy 
after the Second Punic War, and much more recently 
much nearer home. Again, smaller intermediate or 
small manufactures may be continued because the 
workpeople can be more oppressed than if collected 
in factories, able to combine and protected by law, 
instead of separated and unprotected ; of which 
evil London affords many striking examples. Again, 
bad laws of succession or transfer of property may 
cause farms to be unduly reduced in size, and many 
a profitable large business to be broken up, as in 
France ; or may render difficult, as in England, the 
proper breaking up of large farms into small. The 
growth of great factories may be fostered by the 
managers being allowed the power of overworking 
the operatives, especially women and children, as 
in England before the factory laws were made 
efficient ; while conversely, bad laws on lending 
and bankruptcy, on adulteration and fraud, may 
favour unscrupulous petty merchants at the expense 
of those who have a name and a position to lose, 


and may foster the petty shopkeeper by enabling 
him to defraud the poorer classes or hold them 
enthralled to him by debt. 

The foregoing examples may serve the conclusion 
of history and reason that no particular industrial 
dimensions are in themselves any security of social 
welfare, or in themselves incompatible with it. For 
social welfare is distinct from the mechanisms of 

This proposition is indeed subject to the obvious limita- 
tion that additions to a colossal business will in time become, 
at least from the national point of view, less profitable, and 
we must call it then a monster -business, while on the other hand 
a miniature business may become so small as to be equally 
deformed, and can then be called a dwarf -business. In agri- 
culture monster farms are often styled latifundia, and the 
existence of many dwarf farms is called morcellement. Besides 
these two extremes there can be mistaken dimensions, too 
large namely for one set of advantages, and too small for 
another. Thus it is said that an arable farm in England if 
over 12 acres should not be less than 100. And in all branches 
of industry according to locality and circumstances, experts 
could probably warn us that a business of certain dimensions 
was at one and the same time too large and too small. 

We cannot even say for certain that a multitude 
of small (or at least smaller-intermediate) farms are 
essential to national happiness ; only that rural 
residence for the mass of the inhabitants is such 
an essential, and that a multitude of such farms 
is a probable antecedent of that residence. But 
probability is not certainty; and at least in the 
level plains of temperate regions where machinery 
can so easily be applied, progress may fill the 

intrywith large farms and rural factories: only 
probably then we should need a vast extension of 
miniature agricultural industry, inasmuch a, every 


cottage of every poor worker at the colossal farms 
or factories would have its rood of land attached 
to it for the proper life and work of the mother 
and her children. 

Professor Marshall well points out (Principles, p. 694) how 
" very small holdings, which can be worked by people who 
have some other occupation, and also allotments and large 
gardens, render great services to the State, as well as to those 
who cultivate them. They break the monotony of existence, 
they give a healthy change from indoor life, they offer scope 
for variety of character and for the play of fancy and imagina- 
tion in the arrangement of individual life ; they afford a 
counter-attraction to the grosser and baser pleasures ; they 
often enable a family to hold together that would otherwise 
have to separate ; under favourable conditions they improve 
considerably the material conditions of the worker ; and they 
diminish the fretting as well as the positive loss caused by 
the inevitable interruptions of their ordinary work." 

What the future is likely to bring cannot be 
foretold, so many are the causes both good and bad 
in operation. The spread of trade journals and 
other means of getting information, the ease of 
getting patterns and samples, and the possibilities of 
distributing power by electricity, are new technical 
points in favour of small manufactures and dealers ; 
but other new inventions are against them, and on 
the whole there seems no ground to expect any 
reversal of the great change that has already 
happened in manufactures ; while in retail dealing 
it seems likely that the elimination of small dealers 
will be carried much further. And the social 
reforms demanded by the school, of which this 
volume is an exponent, would probably hasten the 
process and hasten the growth of dimensions in 
merchant-shipping ; whereas they would preserve 


or multiply the race of small fishermen, and in 
agriculture would probably result in a vast extension 
of production on a small or miniature scale. 

As a conclusion to this chapter let us add a few 
words on forms of business, namely, the constitution 
of the management, whether single or plural, and 
if plural, the relations between the managers. 

The technical revolution has given to forms of 
business an importance which was wanting before, 
and has introduced a sort of contradiction ; for on 
the one hand by the frequent vast increase in 
dimensions, plural management has become in 
many cases a necessity ; on the other hand, single 
management is required by the speculative character 
of business, and the advantage those get who can 
act uncontrolled, in secret, without delay, and with 
the utmost energy. Much of production has in 
fact during the last hundred years been assimilated 
to the business of merchant adventurers, and much 
written on the proper qualifications of the single 
manager of a large business, for whom, no word 
appearing suitable in English, the term entrepreneur 
has been borrowed, which is as good, perhaps, as 
any other term. But there is some confusion regard- 
ing his qualifications. For during the technical 
revolution, and wherever mobile relations have 
exist tween the richer and poorer classes of 

society, there business ability has consisted as v. 
shall see in the Third Book, not only in I ent 

knov '1 skill, p of < h< 

i for produ< tion, the right ■ and 

of selecting efficient subordinates, patting th< 


men in the right places, knowing what novelties 
are really practical improvements, which depart- 
ments of the business are most profitable and to 
be developed, which less profitable and to be 
curtailed, and what provision is to be made against 
contingencies : but also in a stony heart, a brazen 
forehead, a deceitful tongue, the power of exacting 
from the workpeople the utmost work, of taking 
the utmost advantage of the weakness or ignorance 
of others, the art of ruining rivals most utterly and 
expeditiously, and of enticing the utmost possible 
number of victims to indulge in depraved consump- 

Pitfalls, (i) To look only at the good kind of ability, to 
depict the entrepreneur in consequence as the good genius of 
our times, and to exaggerate his importance and his future. 
So notably Professor Walker, who draws a rose-coloured 
picture of the successful entrepreneur and a lampblack picture 
of the no-profit employer or unsuccessful man of business : 
as though failure might not sometimes be due rather to 
honesty and generosity than to carelessness and stupidity. 

(2) To look only at the bad kind of ability, and to depict 
the entrepreneur in consequence as the evil genius of our 
times, every contractor as a public enemy. 

(3) To ignore his importance, and indeed the importance 
of all management, reducing it to a mere easy superintendence. 
So Mill in a well-known passage (Polit. Econ. II. c. iii. § 3), 
and other earlier economists, from whom the Socialists have 
naturally drawn the conclusion that, assuming an Armstrong 
or a Brassey had only to lounge about their works with their 
hands in their pockets, their remuneration was out of all 
proportion to their deserts. By a natural reaction that prior 
failure of the economists to appreciate the entrepreneur has 
been succeeded by a time in which the long-hidden hero has 
received from them rather too many congratulations. 

But business ability both of the good sort and 
of the bad sort is not hereditary, quite the reverse ; 
and more settled times and the check to the worst 


abuses of mobile relations, are tending to substitute 
for the single entrepreneur by no means once more 
producers and dealers on a small scale and with 
small education, but bodies of well-trained managers. 
These bodies can roughly be divided into two kinds, 
according as the owners of the business are practi- 
cally identical with the managers or not, the form 
of business being in the one case commonly known 
as a private firm or partnership, in the other as a 
company or corporation. Both have their advantages : 
the partnership giving the opportunity of training 
the young men of the rich classes for the command 
of particular businesses : the company freeing the 
business from the risks of private misfortune, and 
enabling greater concentration of the property of 
many separate families in a common business. 
There is room for both as well as for the versatility 
and energy of the single entrepreneur ; and the 
rational principle for a legislature and executive to 
follow is to hinder, as far as they can hinder, all 
fraud, oppression, and strife, and then to give the 
utmost facility for every form of business, every 
variety of association whose aims and means are 
lawful. Any form can be abused ; but the reason- 
able mode of action is to cut off, not the form, but 
the abuse. 

To be blamed therefore is the refusal still continued 
the English law to recognize the form of partnership known 
as en commandite, where the working partnei 1 take unlimited 
liability, and the so-called sleeping partners only lis 
liability; or again, the non-recognition by the French law 
Cmil' ii of joii ' ' impanies with unlimited 

ted with 
the i nd working of joint-stock com] hall 


speak later, and show the position of shareholders of most 
joint-stock companies to be that of creditors (investors), not 
partners. At present also we cannot discuss that form of 
joint-stock business known as co-operation; for as its ra ison 
d'etre is the removal of the distinction between rich and poor, 
or at least between masters and servants, co-operation cannot 
be fairly judged till we understand that distinction. 



The family is the prerequisite of production, the 
ordinary unit of enjoyment, the foundation of 
national welfare and greatness, the principle source 
in the natural order both of virtues and happiness.. 
On the efficiency therefore of the family depends the 
principal part of social welfare ; whatever touches 
that efficiency is a matter of the utmost moment. 
And yet there^have been economists who disregard- 
ing history have ignored the importance of family 
life, or have assumed this life to be everywhere the 
same, a constant force in economics ; when in reality 
the variations in the efficiency of the family have 
been great and manifold both in past times and in 
our own day, and are fraught with all-important 

Let us begin by stating the Christian doctrine 
and practice of family life, briefly indeed as the 
details can be filled up by most of our readers. 

Those who wish for more details on many of the points 
of the present chapter and the next can find them in a 
previous work of the author, namely, Studies of Family 


Life. And those who are indifferent or hostile to Christianity 
may find it useful to have the facts before them as mental or 
social phenomena for their observation. 

The union of man and woman in marriage has, 
according to the Christian doctrine, three characters, 
it is supernatural, exclusive, and perpetual. It is 
supernatural, not a mere natural union like that of 
the beasts for the propagation of their kind, but 
essentially a religious union having as its chief ends 
the spiritual profit of husband and wife, and the 
raising up and proper training of children to be the 
servants of God. It is exclusive and perpetual, one 
man being bound to one woman till death part 
them, and any other union outside this one being 
for the man no less than for the woman altogether, 
uncompromisingly, and absolutely forbidden. 

As a corollary to this supernatural and exalted 
character of the marriage bond, we must recognize 
that it is voluntary : neither man nor woman is to 
be forced to any particular marriage, nor again 
forced to marry at all. Indeed, a life of perpetual 
virginity dedicated to God is held both for men and 
women to be a higher life than the marriage state, 
though that state may be the common and ordinary 
way in which mankind are to fulfil the end of their 
existence. And marriage is also voluntary in the 
sense that no one is to be forbidden to marry, or 
even forbidden, without grave or reasonable cause, 
to make any particular marriage. Further, although 
in this union of husband and wife, the husband is 

the head, the wife subordinate, this BUDOrdinal 
is not a position of servility, but of honour : the man 


is bound no less than the woman to fidelity and 
affection, and in addition is bound to support her 
during life and make provision for her after his 

Touching the relations of parents and children, 
parents are taught to regard each child as a pledge 
of God's love entrusted to their peculiar care, and 
many children to be a divine blessing. They are 
bound to provide the means of life and health as 
long as, or whenever, the children cannot provide 
for themselves ; moreover to train them to get an 
honest living or make an honest marriage according 
to their station, and above all to train them by 
precept and example in the knowledge of the 
Christian faith and the practice of Christian virtues, 
correcting their faults, guarding them from evil 
companions and an evil world. And whatever 
authority father or mother require in order to fulfil 
these duties is their own by a right which no civil 
law can take away : for civil laws cannot take away 
their responsibility, or exempt them from the duties 
which are the ground of their authority. 

Children in their turn owe their parents honour, 
affection, and obedience : the honour and affection 
never ceasing, and bringing the obligation to support 
parents in distress or old age ; the obedience con- 
tinuing complete only so long as the child has not 
grown to be a woman or a man. Then it is 
converted into the duty of a respectful deference to 
their parents' wishes within reasonable limitations ; 
for the liberty relating to marriage or celibacy which 
Christianity gives with one hand she does not take 


away with the other by allowing parents to forbid 
the marriage or religious consecration of their 
children, or to force wife or husband on unwilling 
son or daughter. 

Brothers and sisters are also, according to 
Christian teaching, bound to each other by ties 
closer than those by which the law of charity binds 
all men together. For brothers and sisters have 
peculiar obligations of mutual help, especially the 
elder to help the younger where parents are dead 
or incapacitated, and to provide for their education 
and outfit. 

Now, wherever Christianity has prevailed this 
teaching on family life has borne a more or less 
corresponding fruit in practice, and bears it to this 
day, as those know who have studied the evidence. 

Let there indeed be no mistake about the meaning of the 
prevalence of Christianity and the practice of her doctrines. 
The same authority that teaches the doctrine of family life 
already set forth, teaches also that human nature has been 
corrupted and that disobedience is to be expected. Hence 
in any Christian nation even under very favourable circum- 
stances we may expect a certain number of unfaithful spouses, 
neglectful parents, undutiful children ; and among the rich 
and powerful classes many lapses of the young into vice. 
Still more is this to be expected when, as often, the laws and 
customs of a country have been only half-transmuted by 
Christianity, when alien and hostile influences arc prevalent, 
or when the people, though retaining the main teachings of 
the Christian faith on family life, is yet separated from the 
unity of the Christian Church and deprived of many 1 1 1 • 
Of observing her precepts. 

Th»- real point, however, is not that evil will be ab enif 

but that good will be present, and that in multitudes of hoi 

ly among the poorer cla 1 .tin- beautiful life oi 
Christian virtue is being led, and a modest, obedient, and 
donate youth is being rear d, a oi vigour and 

ality. Such, for example, with the significant 


of great parts of England and France, was the state of the 
rural classes in most of Europe in the middle of the nineteenth 
century, quite irrespective of country, tongue, or race : Irish 
and Rhinelanders, Basques and Flemings, Spaniards and 
Hungarians, Italians and Poles, and in great measure also 
Dutch, Saxons, Swedes, Russians, Bulgarians : not to speak 
of many in parts of England and France, or to cross the 
Atlantic to the New World, or to go back to previous centuries, 
or to give illustrations from the urban inhabitants or from the 
richer classes of Christian nations. Hence it is quite an 
unfounded objection to say that the strict fulfilment of the 
Christian precepts on the family is an impossible ideal ; 
though indeed it is impossible for the vast multitude of men 
df the doctrine on which it rests is cast aside. 

On the family law corresponding to the Christian 
view of the family two points require particular 
notice. First, that many varieties of the law touch- 
ing for example the effects of marriage or property, 
the extent of paternal power, the right of testation, 
the rules of succession, the mutual responsibility of 
the members of the family, can be all equally in 
harmony with Christian family life, which being for 
all countries and all circumstances is very flexible 
in its requirements. Secondly, that many laws and 
customs more or less out of harmony with the 
Christian family, yet not incompatible with it, are 
tolerated, and may even be approved per accidens as 
the best under the circumstances ; and thus are 
quite distinct from legislation which is in direct 
conflict with the Christian family, like the divorce 
laws of the United States, of England and of 
France, or the prohibition of marriage between 
negroes and whites. 

Bearing these two points in mind, let us examine 
certain portions of family law and their application 
in Europe and America, beginning with the rela- 


tions of husband and wife. Here the Christian 
ideal would require all goods to be held in common, 
the husband to have the administration and control, 
but not the absolute control, the wife to be secure 
not merely of proper aliments while a wife, but of 
proper support when a widow. And " proper" 
means in reasonable correspondence with the rank 
and property of her husband. 

In England this security for the wife has been reached in 
two ways. In the middle ages the widow had under the title 
of dower a right to a third of the lands and tenements held 
by her husband at the time of marriage, and one-third of all 
other property. In modern times, with the absolute freedom 
of testation and disposition of property, the wife and widow 
has been equally protected by the almost universal practice 
of marriage settlements. In America many States have adopted 
Homestead Exemption Laws by which a definite unit of property 
like the homestead and the means of cultivating it, or a 
definite sum of money, is made a secure refuge of the family, 
which the husband cannot alienate without the wife's consent, 
and which after his death remains in her possession for life. 

Naturally no such provision for the wife or 
widow is needed in countries where law and practice 
combine to place much property in the hands of 
married women, property which they can manage 
and dispose of quite independently of the husband. 
This ill accords with the order and unity of Christian 
family life ; but is perhaps the best arrangement 
under the unhappy circumstances of those countries, 
like the Roman Empire under the Caesars and the 
present Mahometan countries, where divorce is so 
common as to be an ordinary contingency for which 
the law should make provision. 

In both the Roman rind Mahometan Byttem of family i 

uu i led women 1 ate pi opei I piLred ;nnl 

usual. Mai. le in England applauded tin- Man 


Women's Property Act of 1882 without at all understanding 
the sinister connection between it and the law of 1857 that 
established a divorce court. 

Moreover, from the Christian point of view, just 
as among the richer classes, it is unsuitable for the 
wife to be separately established : so too among the 
poorer classes it is unsuitable for the wife in ordinary 
circumstances to get her living separate from her 
husband, instead of being normally engaged in 
keeping the home in order and in taking care of 
her young children. This matter has become of 
grave practical moment in the nineteenth century, 
because married women so often quit the manage- 
ment of the home and work in factories or shops, 
with incredible injury to wealth, happiness, and 
morality : a remedy for which evil is one of the 
urgent problems of our time. 

A factory worker can hardly act as a skilled housewife ; 
but " a skilled housewife with ten shillings a week to spend 
on food will often do more for the health and strength of her 
family than an unskilled one with twenty." (Marshall.) The 
loss to children from the lack of mother's training, the loss 
to all the family from the lack of a well-ordered house, the 
loss to the wife and mother from being removed from her 
proper surroundings, the loss to the husband because his 
duty of being the main support of the household is obscured, 
and he is tempted to think that woman's function is to work 
and man's to be idle and drink : such evils are beyond the 
measurements that figures can express, and the seeming extra 
earnings of the family afford but a sorry and delusive com- 

Where indeed the hours of women's factory are short, the 
evil is not so great ; and where proper homes are wanting, all 
objects of consumption bought and none made at home, no 
brewing or baking done at home, and a minimum of cooking, 
washing, and mending, no garden, poultry, pigs, or goats for 
the housewife to attend to, the mutual responsibility of the 
members of a family little thought of: there factory work may 
be a beneficial occupation for married women, while the old 


people and the sickly may be usefully employed in attending 
to the children during their mother's absence. This at least 
is better than where the old and sickly are in the workhouse, 
and the mothers in the gin palace. But this justification of 
the work of married women away from their families in 
factories or shops is only a justification per accidens ; and 
if Christianity got the upper hand, the grounds of such 
justification would be removed, and in all ordinary cases such 
work would be prohibited or only allowed where the mother 
and her children could be at work together in one room, or 
the entire working of a particular machine, as is sometimes 
possible, could be given over to a particular family. And the 
mother being restored to her home, the poor substitutes for 
the mother's care and for the family meal, such as the creches 
for poor children, and public kitchens or cheap dining-houses 
for the workpeople, would cease to be a dismal requirement 
of our time. 

The proper relations of parents and children, 
especially of father and sons, require that the 
parent should have over the children full powers of 
control and correction up to a certain age, full 
freedom in the choice of their education, certain 
powers of disposition of family property during life 
and also by will ; that between parents and children 
mutual claims of support should be recognized, and 
that the laws of intestate succession should give 
the property to the children unimpaired except by 
the life-estate of the widow. 

In regard to the richer classes and peasant 
owners, the chief points of discussion are the laws 
of testation and succession. In England, Ireland, much 
of North America, including some Mexican and 
Central American States, a father can by his will 
transfer rill his goods to strangers and leave his 
children penniless ; and the l< tter of the law seems 
to invite abuse. But the working of laws, net the 

letter, is what matters: and the for e of public 


opinion as well as the frequency of marriage settle- 
ments are sufficient checks, at any rate in England, 
to this arbitrary power ; where also by no arrange- 
ment either inter vivos or post mortem can a man tie 
up property indefinitely or settle it for a longer 
period than the life of a living person and twenty- 
one years beyond. Indeed, if our law of testation 
was supplemented by certain of the Homestead 
Exemption Laws, which secure a farm or house 
from being seized by creditors or from being 
alienated without the wife's consent, and which 
create a solid mass of property that cannot be 
touched till her death and till the youngest child 
has come of age : it would perhaps for our times 
and circumstances be the best possible law, better 
than any attempt to prevent parental injustice by 
legitims, that is by the law assigning to children 
some fraction of the property of which their parents 
cannot deprive them. 

The French civil code, the fruit of the Revolution, and 
avowedly directed against parental power, forbids the parent 
to give away during life or by will more than half his property 
if he has one child, more than a third if he has two children, 
or more than a fourth if he has more than two. In other 
countries legitims, once exaggerated in imitation of the 
French revolutionary code, have generally been reduced to 
more moderate limits. Thus in Italy and most of Germany 
children, however many, cannot claim more than half the 
property ; and in Spain, by a recent reform, although two- 
thirds of the property must go to the children, only half of 
the legitim (one-third of the whole property) is divided 
equally among them, while the other half can be given 
entirely to one child if the father so determine, or distributed 
in any way among them that he pleases. In many parts of 
Germany by recent legislation, the property of the peasantry 
and yeomanry (Bauem = small and intermediate farming- 
owners) has been put in a separate legal category, and the 


father can bequeath it entire to any one of his children, who 
is called the heir (Anerbe), and who then within a certain 
number of years pays off to his or to her brothers and sisters 
a very moderate legitim. 

In default of a testament the law must in some 
way indicate the devolution of property. This is 
intestate succession : of which the reasonable 
principles can perhaps best be understood and 
remembered by looking at the extreme of unreason 
the revolutionary and rationalistic French law of 
intestate succession. 

First, all property is treated by that law alike, 

and divided equally among all the children ; whereas 

a wise law will treat rural properties apart, especially 

those below a certain size, and will endeavour to 

preserve small farms intact in the hands of a single 


In England, when the land was overspread with small 
farms, and for many centuries previously to the sixteenth, 
the farms passed from the father to the eldest or to the 
youngest son according to the custom of the manor. In 
later times primogeniture was rather a means of preserving 
large than small properties, and like the rest of our law of 
intestate succession has been of little importance, because of 
the prevalence of wills and settlements. In Germany and 
Austria by the recent laws already named, if there is no 
testament one child succeeds as the heir to the whole faun 
and pays off to the rest their claims by degrees. This child, 
in Germany, ia the eldest son; but the Au itrian law of 1889 
leaves the matter to be settled by local legislation. 

Secondly, the French law fives daughters exactly 

the same amount as sons; whereas the true honour 

and dignity of women is best consulted by leaving 

the 1 .1 management of pr< 

in the: hands of men. 

, which till recently gave all 
real | itely to the 1 without any obli 


tion to provide for brothers and sisters ; and then made no 
distinction at all of age or sex in distributing personal 
property (as though one excess could be balanced by 
another), would not have been a tolerable law unless it had 
been tempered and supplemented as it was by the prevalence 
of substitutions and testaments. 

Thirdly, the French law is not satisfied with 
each coheir having equality in value, but each lot 
or portion must be made up alike, each child able 
to claim a bit of the farm, a bit of the business, a 
bit of the house property, with disastrous effects on 
the continuity of business firms as well as of farms : 
whereas a wise law should seek to prevent any 
break in industry by death. 

Finally, by the foregoing provisions and by 

others making all family arrangements before or 

even after the death of the parents difficult and 

uncertain, the greatest obstacles are put in the way 

of a family of brothers and sisters, or remoter 

relatives dwelling together, the greatest possible 

incentive is given to disputes, the greatest possible 

field for the intervention of public functionaries, and 

the absorption of a great portion of the inheritance 

— if it is small, of the greater portion — by the 

various harpies of the law. 

In fact, lawsuits regarding successions form in France a 
great part, sometimes nearly a half, of all lawsuits ; and 
small inheritances are sometimes reduced by legal expenses 
to almost nothing. In England, though we are comparatively 
free from these evils, we suffer like many other countries, 
France included, from the impositions known as the death 
duties, that is from taxes on successions, which, as we shall 
see in the Fourth Book, are burdensome, unfair, and injurious 
to the continuity of family life. 

Among the poorer classes of society, especially 
in large towns and among the factory workers, the 


laws of wills and inheritance are of less weight in 
affecting the relations of parents and children ; and 
the point of importance for them is the parental 
control over the general and technical education, 
and over the earnings of the children. And here 
Great Britain has no advantage over France, but 
both countries as well as many others suffer from 
the premature emancipation of the young, the 
premature decay of the old. The technical revolu- 
tion has been made the occasion of an evil change 
enabling boys and girls to earn wages working apart 
from their parents, to dictate terms to them, even 
to quit them and set up for themselves with injury 
to their morals only too obvious and too lamentable. 
And this independence is fostered because the stress 
and strain of production with machinery makes 
those in later life less efficient than they used to 
be, long experience and slow but careful work being 
now of less value, the quickness of youth of more 
account ; and thus makes the earnings of the boys 
and girls of relatively greater importance in the 
family budget. This being so, there was need of 
increased care, that in the primary schools the 
primary thought should have been the teaching of 
religion, of reverence, and of obedience; that the 
care of providing for aged or incapacitated parents 
should have been stringently enforced, that the 
earnings of boys and girls should never in ordinary 
circumstances have been put into their hands, a 
direct encouragement to insubordination or deceit, 
but have been paid to their father or mother, or at 
least deposited in a savings bank till they came of 


age or were married. Whereas just the reverse has 
been done in much of Europe and America : the 
parents virtually compelled to send their children 
to irreligious schools, coerced into granting them 
premature independence, and exposed to a miserable 
old age of solitude, neglect, and poverty. Hence 
to both young and old an incalculable loss of 
economic goods, and the first principles of the 
Christian family trampled under foot. 

In England we see an extraordinary contrast between the 
richer and the poorer classes. For the law gives to the one 
what it denies to the other, freedom in directing the education 
of their children, control of them till they are of age, influence 
over them afterwards ; and thus if a boy, while yet a boy, is 
insolent or irreligious, in nine cases out of ten it is the fault 
of the parents : but among the poor in nine cases out of ten 
it is not their fault, but their misfortune. Moreover, it is only 
among the poorer classes that the technical revolution has 
lessened the relative superiority of old age ; business manage- 
ment still requires the prudence and experience of years ; 
and the earnings of non-industrial labour, of literary and 
scholastic, of medical and legal, of civil and even military 
employment, are generally at the highest twenty years or 
more after a man has passed his physical prime. 

It may be objected that to give to poor parents an 
authority over their children equivalent to that held by the 
rich, is to enable brutal parents, besides ill-using their 
children, to live idle and drunken on their earnings. But we 
must not in our fear of occasional abuse of parental power 
by degraded parents suffer that power to be destroyed and 
thus perpetuate the disorganization of the family, and per- 
petuate in consequence one of the chief causes of that 
degradation. For undutiful or immoral sons or daughters 
become bad fathers and mothers. Moreover, such abuses. 
can be gradually reduced to a minimum by the spread of 
religion and by other social reforms ; and could be lessened 
immediately by a little common sense in legislation. For if 
it be made illegal to employ, or to continue to employ any 
lad or girl under age without the consent of the father or 
guardian, and illegal to pay them their wages, or any portion 
of them without the written consent of such father or guardian, 
and compulsory to keep an accurate and visible account of 


all earnings of such lad or girl : the law, while rightly making 
employers support in this fashion parental power, may 
prevent abuse of it by, for example, allowing the employer, on 
the known misconduct of the father, to pay the young people's 
wages to the mother, or to lodge them in a savings bank. 

Touching the mutual position of brothers and 
sisters and also of more distant relatives, one of the 
great points of interest is how far law or custom 
favours or hinders their dwelling together in a single 
household ; for the economic importance of the 
family greatly depends on its size. A technical 
term for such union is required, and the best seems 
the word joint family, which we may take to mean 
that more than one married couple live together in 
one household. The simpler form is when one 
married son or married daughter lives at home with 
the parents ; and this is the normal and suitable 
course where rural property, especially that of 
yeomen and peasants, continues undivided in the 
same family. A peasant household of this kind (to 
which Le Play has given the title oifamille sonchc or 
stem family) will comprise on an average some fifteen 
or sixteen persons and generally three, often four 

For example, if the father is about fifty years old wc may 
reckon the mother, the eldest son and his wife, seven youi 
sons or daughters, a grandparent, two unmarried relative t, and 
an apprentice or servant. Here are fifteen | 
ten of whom are able to do work, and three generation 1. In 
a few years there will be the addition of the young children 
of the married son and perhaps fr< b unmarried relatives — a 

sailor or a childless widow come back to join the home ( )n 

the other hand, then: will have been a diminution by the 
th oi the old grandparent and the departure of som< 

the younger : .on., or daughters. 


The advantages of such households are very- 
great in three ways: first, in the joyful society they 
give, the mixture of young and old, the abundant 
opportunity of recreation and instruction ; secondly, 
in the process of production many of the advantages 
of concerted labour are secured as is obvious, and 
secured without the drawbacks of carelessness, 
dishonesty, and misdirected production or con- 
sumption, on which enough has already been said; 
thirdly, in the process of consumption there is 
a remarkable saving: for if that family of fifteen 
were broken up into three separate households, the 
aggregate expense of housing, lighting, heating, 
cooking, cleaning, washing, and much else of 
domestic work would be at least double, for the 
simple reason that the materials and implements of 
consumption, the roofs and walls, the furniture and 
adornments, the gardens and play-rooms, the fuel 
and stores, the kitchen pots and pans, the stews 
and broths and brews, that are sufficient for five 
people, will in some cases be sufficient for fifteen, 
very often sufficient for ten, very rarely insufficient 
for more than five : not to speak of the greater 
variety of food and of other objects of enjoyment 
which is possible in a large household, a variety 
equivalent, as we shall see later, to a great increase 
in quantity. 

Such stem families are also in complete harmony 
with the Christian view of the reverence due to 
parents, the reverence due to age, the mutual care of 
brothers and sisters for one another ; and hence 
where adverse laws and circumstances have not 


put a hindrance, they have been common in Christian 
countries, and now are likely in those parts of 
America that have the benefit of Homestead Exemp- 
tion Laws to grow more common among the rural 
and religious part of the American people. 

But though good, a stem family is not essential 
to the Christian family, however congruous to it. 
And in certain cases, notably among the rich and 
cultivated classes where there is no hereditary 
business to be handed down, and in rapidly changing 
society where the education and manners of one 
generation differ much from another, and amid 
those who habitually dwell in towns, the advantages 
of joint families are less, the difficulties, especially 
the want of community of views, are greater; and 
in such cases the duties of the Christian family may 
be accomplished even better when each household 
is separate. 

The more complex form of the joint family is 
where several married brothers live together with 
children perhaps also married, and numbering 25, 
40, even 100 persons, all holding and using the bulk 
of the property in common, and all under the 
control of a head either elected (and then sometimes 
a female head) or according to some rule of succes- 
sion like the eldest male of the eldest line. The 
term patriarchal family is sometimes given to such 
unions, though the term complex joint family k ems 
better. They have been frequent in many and in 
different nations and times: they were presuppo ''I 
by the early law both of the Romans and the 
»ks, probably were frequent at one time am< 


the Jews, are frequent to this day among the 
Chinese, Bulgarians, and Servians, were frequent in 
the first half of the nineteenth century among 
Russians, Croatians, and Hindus. 

From the point of view of the production and 
consumption of wealth the complex joint family has 
the advantages of the simple joint family in a higher 
degree, and acts still more forcibly as a mutual 
insurance society against individual misfortunes and 
as a means of protecting the weak and controlling 
the worthless. The other extreme is what has been 
called the instable family and is common in Western 
Europe and America. In this form of domestic life 
there are no family traditions, no paternal hearth, 
parental authority is transient, the children soon 
work and live apart from their parents, and the 
sense of mutual responsibility is small. Compared 
with this instability the solid complex joint family 
of the East appears to great advantage. But the 
Christian ideal of the intimate union of husband and 
wife, of parents and children, is more attainable in 
the simpler form of the joint family, in the stem 
family rather than in the patriarchal, which is 
perhaps more suitable to rude and semi-civilized 
than to highly-civilized times. 

Great alikeness of culture, tastes, habits, views, politics, 
literature, as well as habits of great subordination and 
reverence, are needful for the complex joint family. Hence 
this institution when once dissolved in any country can 
scarcely again be restored there ; whereas the simple joint 
family is likely enough to spring up again wherever Christi- 
anity gains the predominance. 

Among both the Chinese and the Hindus the prevalence 
of joint families has been fostered by habits and sentiments 


unlike those of Christian nations. For much as the Chinese 
and Hindus differ in their religious, domestic, and industrial 
life, they agree in the vigour of their ancestor worship. 
Hence all descendants of a common ancestor, especially of 
a common parent or grandparent, are bound together by 
common worship of the dead and reverence towards the 
living, and this union of mind and worship is favourable to 
living in a community. Even where they live apart, the duty 
of helping poor relations is recognized to a degree that 
astonishes English observers, and in China at least, is a 
hindrance to great fortunes, since the richer a man grows, 
the greater the claims of his collateral relatives. Moreover, 
as a consequence of their religious views, marriage is 
practically obligatory, universal, very early, and arranged by 
the parents, not by the parties, who being mere boys and 
girls are unable, even if custom allowed it, to set up house 
for themselves. 



The family is the foundation of the State : the 
multiplication of families is the origin of nations, 
and wherever family life is sound, and exceptional 
calamities like war and pestilence are absent, every 
civilized country will show every year a considerable 
excess of births over deaths. This excess indeed 
will vary much according to circumstances, but we 
shall not be far wrong in laying down that it must 
not in all ordinary years be less than one per cent, 
of the total population, or, to use the better standard 
of reckoning for vital statistics, ten in the thousand. 
If it is much below this, something is wrong, like the 
decayed family life which results in the low birth- 
rate of France and New England, or the unhealthy 
surroundings which result in the high death-rate of 
Spain and of parts of British India. But putting 
aside such cases of defective natality or excessive 
mortality, a vigorous nation will add from ten to 
twenty in the thousand every year to its population 
by the mere excess of births over deaths, and will 
double its numbers in less than half a century, 
unless great emigration or some great catastrophe 


As a fact the European nations have rapidly increased 
in the past seventy-five years in which there has been a com- 
parative absence among them of war, pestilence, and famine; 
and increased in spite of the emigration of many millions to 
the New World. In parts of America, all favourable circum- 
stances combining, there has been an increase, if not so great 
absolutely, at least relatively greater than in Europe. Thus 
the United States in the last hundred years has grown 
from about four millions to sixty-two, Brazil from under one 
million to about fourteen. On the other hand, Spanish 
America for some half- century previous to 1870 was 
depopulated by civil wars, and only since then began 
rapidly to increase in numbers. In Europe, as far as 
accurate statistics are available, the excess of births 
during the last few years have been : in Austria and 
Belgium about 9 per mille, 10 in Italy, n in Hungary, 12 in 
the German Empire and Sweden, 13 in England, Scotland, 
and Holland, 14 in Norway and Russia. On the other hand, 
in Spain and Ireland only 5, and in France only 2. But mark 
well that these three cases of deficiency are each due to 
totally different causes. In Spain the figures are dubious : 
if true, the cause lies in the unsanitary conditions and the 
consequent high death-rate. In France and Ireland the 
figures are correct, the death-rate low, the deficiency 
the simple consequence of the low birth-rate. But then in 
the case of France this low birth-rate is due to sterility of 
marriage, a matter to be referred to presently, whereas in 
Ireland that dreadful moral disease is absent, and the low 
birth-rate is simply the result of the fewness of married 
persons (some 8*5 per mille, as compared for example with 14*5 
per mille in France and England, and 15*5 in Germany), 
because so vast a proportion of the young people of marriage- 
able age have left or been made to leave their unfortunate 

Pitfall. — To draw conclusions from vital statistics without 
a further examination of their grounds: when in fact the 
same effect maybe due to the most unlike causes, and require 
totally different remedies. Immigration or emigration may 
entirely alter the significance of vital statistics. Inland is 
one example; another is in the very lew death-rati 
Australasia, which in 1889 was only lA'oaper mille; for this is 
OOly in part due to the healthy conditions ef life, th<- <>tl cr 
ing from a ran e cannot continue, naux-ly, l he 

I proportion in the total population of immigrant in the 
prime of life. Another point to remember is that mortality 
amongst very young children. 1 

. ranee in recent years a death-rat "I about so per 


mille and about 21 per mille in Holland, we must not hastily 
conclude that the sanitary conditions of France are rather 
better than those of Holland. For Holland with its high 
birth-rate has many more fragile infant lives than France 
with its low birth-rate, and corrected calculations would show 
Holland to be the healthier country of the two. 

But if vigorous nations are thus in a perpetual 
state of growth, we seem to be met by a difficulty. 
For, although increase of numbers in any country 
may at first, and for a long while, enable increasing 
returns to be got for the same amount of labour, 
this process cannot go on ad infinitum, and in time 
the principle of diminishing returns will come into 
play, and increased labour on a given area yield in 
proportion a smaller return. The skill and intelli- 
gence of man can indeed by one improvement in 
production after another neutralize the action of the 
law of diminishing returns, but not indefinitely ; 
and indeed, even among growing nations consider- 
able improvements are not always to be seen or to 
be expected. Hence, if such nations were confined 
to narrow geographical limits, they would be exposed 
in no very long time to the evil of overpopulation in 
the strict and proper sense of the word, in which 
sense alone it should be used in economics. A 
country, namely, or a district is overpopulated, 
when, because of the great number of the inhabi- 
tants, production has to be pushed to that degree of 
intensity which gives but a scanty return, and when 
in consequence many of the inhabitants are over- 
worked or ill-fed. Such conditions are well expressed 
by the phrase that population presses on the soil; and 
assuming no improvement in the arts of production, 


the only possible remedy is a diminution of the 
number of inhabitants. Otherwise the evil will 
advance to the point where the multitude of deaths 
from starvation or semi-starvation, will raise the 
death-rate to the level of the birth-rate and secure 
a melancholy equilibrium. 

But as already said there is a remedy, and this is 
to be found in colonization, which has two principal 
forms. One is the actual emigration of great 
numbers and the peopling of (comparatively) un- 
occupied regions, notable examples in recent centuries 
being the spread of English-speaking peoples, of 
Russians, and of Chinese over so much of the earth. 
The other form of colonization is the subjugation 
politically or commercially of other countries, and 
drawing supplies from them in the shape of tributes, 
rents, interest, or profits, and standing to them some- 
what as all large cities do to the country districts 
around them. Most of the States of Western 
Europe, notably England, Holland, Belgium, and 
France, have profited, or are profiting by this method 
of national expansion. 

The French neatly express these two kinds of colonization 
by the phrases colonie de peuplement and colonic Sexploitation. 
In our own Empire, Victoria and Manitoba are examples of 
the one, British India and the Niger colony of the other, 
while Queensland and Natal are mixtures. 

A third kind of colonization is the migration of whole 
tribes and peoples, such as that of the Gauls into Italy and 
Asia Minor before the Christian era, and later of the 
Teutonic tribes into the Roman Empire, and of the SclavO- 
nians into Central Europe and Greece, and the victorious 
migrations of Norsemen and Arabs, of Tartars and Turks. 
But the primary business of economics is with civilized 


nations ; and on these migrations it is enough to point out 
that they all presupposed a vigorous family life among the 
invaders, an habitual excess of births over deaths. 

Colonization therefore in some shape or other is 
an essential feature of a vigorous nation. No doubt 
there may appear another way to avert or remove 
the evil of overpopulation, namely, by a reduction 
in the birth-rate. But this remedy brings evils 
worse than the disease which it is meant to cure. 
For the low birth-rate required can only be reached 
by marriages being few, or late, or unfruitful ; and 
this inevitably implies such an extension of im- 
morality as would quickly injure national vigour, 
penetrating into home life, and causing an incalcu- 
lable loss of economic goods, both personal and 
material. For the need of providing for a family, 
and especially a numerous family, is the greatest 
incentive to industry, frugality, invention, and per- 
severance ; the mutual education and mutual 
insurance of the members of a large family is one 
of the greatest barriers against impoverishment ; 
the home life of a number of brothers and sisters 
together the most abundant fountain of earthly 
happiness ; whereas immorality poisons these waters 
and is itself moreover an active cause of poverty. 
Hence no delusion is greater than to suppose that a 
nation can live in a stationary state with births and 
deaths at a level, with a minimum of poverty and 
a maximum of culture and happiness ; for it will 
inevitably abound in selfish indolence, in sensuality 
and greed, with discord, misery, and impoverishment 
as the consequence, and is likely enough, having 


once made this evil start, to travel onwards along 
the high-road to national extinction. 

Among the Australian aborigines families are very small, 
and marriage is strictly forbidden till men reach the age of 
28 or 30. Perhaps this was a remedy against overpopulation 
adopted by these miserable hunting tribes in a perpetual 
struggle to secure an adequate supply of food. But the 
remedy has only helped to perpetuate their degradation. 

Among the pastoral, or semi-pastoral tribes of Central 
Asia a large portion of the inhabitants remain unmarried as 
" lamas " in the Buddhist monasteries. Perhaps this too, 
as has been suggested, was to prevent overpopulation. But 
it has effectually destroyed their national vigour ; the former 
terror of Europe and Asia, they are now being absorbed by 
the Chinese, and the necessity, and therefore the spur, to 
pass from pastoral to agricultural life has been wanting. 

The classical Greeks openly and avowedly tampered in 
their frivolous rationalism with the sacred springs of family 
life, limited their families, fell into the most degrading 
immoralities, lost all genuine patriotism, and lay for centuries 
in a slough of despond, feeble and foul, till Christianity came 
and renewed among them a stock of vigorous homes, and the 
possibility of political regeneration. 

But another difficulty appears in our way : the 
very colonization which has been given as a remedy, 
is only a temporary remedy, only puts off the evil 
day. For what will happen, it may be asked, when 
all the land available for colonization is occupied ? 
Are we not brought once more to the dilemma of 
overpopulation on the one side, and the worse evil 
of limitation of marriages or births, to infanticide 
or to other horrors on the other side ? Nor are we 
to be allowed comfort by imagining this to b 
matter of a future too remote for practical concern* 
On the contrary, it was calculated at the Bril 
Association in 1890, that taking the present popula- 
tion of the globe at about 1,500 mill ad the 
number that could live on the earth at about 6,000 


millions, an annual excess of births over deaths by 
only eight in the thousand would fill up the earth in 
less than two centuries. 

Now it may rightly be objected to these figures 
that the capacity of the earth has been greatly 
underrated, and that even without any fresh inven- 
tions and with only our present knowledge and skill, 
not merely four times the present population of the 
earth could find support, but fourteen times or more, 
and that this multiple in its turn may be doubled 
or trebled by the progress of inventions. Let us, 
however, for the present leave the figures as they 
stand ; for the difficulty, even if exaggerated, can be 
answered adequately by two arguments from history. 

Historical science has made known to us that 
the world has been inhabited much longer than we 
thought, and is every day making more evident the 
number and magnificence of ancient civilizations 
that have perished. Now, if overpopulation is a 
real danger as alleged, we may ask why it has not 
come upon the world long ago, why for example 
the ancient nations of Guatemala, or Cambodia, or 
Mashonaland did not long ago double their numbers 
every 50 years and fill the earth ? And the answer 
in their case is the answer in ours, that every 
civilization is constantly threatened by the double 
danger of catastrophes and corruption ; so that 
the excess of births over deaths — the annual ten to 
twenty in the thousand that I have required — is a 
sort of insurance against sudden and fearful excesses 
of the death-rate that are to be expected from time 
to time, and a sort of provision against the decline 


of births only too likely to come in the future. Of 
catastrophes the chief are, pestilence and warfare. 
For famines, floods, earthquakes, eruptions, are 
more or less local, rare, unimportant, or preventible. 
Pestilence, perhaps it may be said, has lost its power 
before the progress of medical science and sanitary 
precautions. But this is very dubious ; recent 
historical science has shown that among the masses 
personal cleanliness was greater in the middle ages 
than in the seventeenth, eighteenth, or nineteenth 
centuries ; and the black death that so suddenly 
and unexpectedly cut off half Christendom in the 
fourteenth century, raging in the rural districts 
as well as in the towns, cannot be satisfactorily 
explained by any deficiencies of doctors and drains ; 
still less the destructive plagues a thousand years 
before in the Roman Empire ; for the Romans, 
if they were anything, were sanitary engineers. Be 
his, however, as it may, warfare, whether foreign or 
civil, remains as a catastrophe ever imminent, and 
capable in a few years of undoing a long period of 
growth. It took Germany a century and a half to 
recover from the Thirty Years War. The Spanish 
language would now be spoken by some 150 million 
people instead of some 50 million, had not civil war 
during about sixty years been chronic in Spain and 
Spanish America. Millions upon millions perished 
during the space of fourteen years in the Taeping 
rebellion in China, and whole regions were depopu- 
lated. True that the 1 of humanitariani 
and opolitanism made many people think 

toward middle of the nineteenth century that 


bloodshed was at an end. But their hopes were 
dreams : the visible growth of national rivalry and 
gigantic armaments can only issue in desperate 
struggles ; while not a few among the nations are 
troubled with the growth of internal dissensions and 
accumulations of social hatred that point to bloody 
catastrophes in the future. 

In view of these facts of history it is unreason- 
able to assume that no great catastrophes are before 
us which will greatly reduce the numbers of the 
world's inhabitants. And, again looking to history, it 
is unreasonable to assume that the actual birth- 
rate of the vigorous nations of the present will 
not sink and their vigour be smitten with decay. 
The Greeks, whose colonies once encircled the 
Mediterranean, became afflicted with the disease of 
rationalism, looked on children not as God's blessing, 
but as a burden, and lived either in vicious celibacy 
or in sterile marriage, limiting to one or two the 
number of their offspring. Indeed, a new word, 
oliganthropia, was formed in the language to express 
the paucity of population due to this diseased home 
life ; and the conquering Romans in their turn were 
infected with the evil contagion. But look at more 
recent examples. The immoral home life of a great 
part of the Mahometan world has changed the 
triumphant foes of Christianity into helpless and 
decaying nations, whose dominions are becoming 
the fields for European colonization. Among the 
French, after irreligion had got the mastery over 
a great part of the people, the birth-rate proceeded 
to decline, and the successive decades of the nine- 


teenth century show the following nine stages in the 
downward course, the average annual birth-rate in 
each being respectively per mille, 33, 32*1, 30*8, 28*9, 
27*4, 267, 25*4, 24 (or thereabouts). How totally 
disconnected is this matter with race or country, 
how wholly dependent on morals and religion, is 
seen by the same phenomenon appearing among 
the descendants of the English Puritans in New 
England, where pari passu with the decay of religion 
and morals the birth-rate has dwindled still more 
strikingly than in France. 

The actual figures indeed appear higher than those of 
France ; but it is only appearance, for the many Irish and 
French-Canadian immigrants with their large families mask 
the decay of the native New Englanders. The force of this 
moral plague over large parts of the Union can be traced in 
the Census Returns for 1890 when, in view of the vast immi- 
gration during the decade since the previous census, a 
population of 65 millions was expected, but only 62^ was 

Nay, looking at home to Great Britain itself, we 
see a rapid decline of the birth-rate in the last few 
years, with no exodus like that from Ireland to 
account for it. Thus for the twenty years ending in 
1880, the average birth-rate was 35*3 per mille in 
England, and 34*9 in Scotland ; but since then has 
fallen with scarce any break, and is now in both 
countries little over 30. If this process is not 
arrested the spectre before us will no longer be 

rpopulation, but oliganthropi.i. 

it fa a significant feci tory, and before the tribunal 

nit who will i that 

: the ( in ! tiaa family 1 n abandoned, if app< 

do longi 1 p ■ ( In 1 tian p pulatioo 

retoi lily !)!• oi pra ( b 


escape decay. Heedless of this, we in England for the last 
twenty years have been tampering with Christian family life 
both among the richer classes, by the permission and publi- 
city of divorce, and the spread of anti-Christian teaching at 
the Universities, and among the poorer classes by the godless 
schools and the cessation of parental authority. No wonder 
that Socialism has made such rapid progress among us ; no 
wonder that parts of England are infested with gangs of 
disorderly lads whose misdemeanours have enriched our 
language with the term " scuttling," and aroused a demand 
for corporal punishment to suppress them ; only the rod 
should rather strike the teachers of evil than the pupils. In 
fact, like several other nations, we have of late years with 
perverse ingenuity been preparing the way for the low birth- 
rate of irreligion and the high death-rate of civil disorder. 

The foregoing historical argument ought to dissi- 
pate the fear of an overpeopled world, and show us 
how unreasonable it is to suppose that the popula- 
tion of Europe, because it has increased during the 
last hundred years by about 160 millions, will 
increase at the same rate during the next hundred 
years : we might as well argue that because a man 
is six feet high at the age of twenty, he will be 
twelve feet high at the age of forty. Moreover, 
there seems a probability apart from any spread of 
vice, that the physical life in great cities is injurious 
to fertility ; and with the vast growth of such cities 
in so many countries, this matter becomes serious. 
Then also, as already noticed, that previous calcula- 
tion of the numbers the world can support is much 
under the mark ; and we have besides no reason to 
suppose that the progress of invention is to be 
arrested : such a supposition would be arbitrary. 
Finally, this question is theological : the Divine 
government of the world is concerned, and it is 
absurd to suppose that mankind would be reduced 


to the alternative of misery or vice, or that the 
end of the world, which we know is coming, would 
not come to prevent such an alternative, or some- 
other issue not be contrived for us. Hence any 
difficulties that imagination may conjure up, should 
be left according to the process of logic proper to- 
the case, to be solved by the care of Providence. 

A few words must be added to the theory of 
population which has been so conspicuous in 
English economics for nearly 100 years, and whichi 
is known as Malthnsianism. The foundation of the 
theory is the proposition that existing poverty and 
suffering in many countries is due in great part to 
overpopulation, that consequently the only remedy 
is in some way to diminish the numbers or restrain, 
the increase of the inhabitants, and that without 
such diminution or restraint all efforts at remedying 
misery are ineffectual. This is the characteristic- 
doctrine of Malthusians : they imply that over- 
population is a pressing evil and actual problem ; 
and on the truth and falsehood of this doctrine their 
whole system depends. 

On Malthas himself much irrational abuse and admiration 

expended. In different editions of his work on 

population he did not always say or mean the same thing; 

but the central point of the argument, as became an apologia 
bating society against the attacks of the Communist 

in, was ever that misery was due, not to human injustii e 
and bad institutions, but to the "principle of population," 

that is, to the inclination and capacity oi men to multiply 
•han subsistence. Why Bucb a tendency f, 

ther the m< I man and oi food tended to be, the 

one in geometrical, the other in arithmetical 1 ion, 

whef evil tendency could 1 kedoi remedied, 

and re the remedie • d< u able : all th< 

farther point >n 01 different e in the 1 



Malthus and his followers, but can all be passed over, because 
they are all dependent on that first proposition ; and if the 
premisses are false, why waste time over the conclusions ? 

But when we ask for proof of this root-doctrine 
of Malthusianism we find that it is either taken for 
granted as self-evident, or a proof given that is no 
proof; and our difficulty is not in answering the 
argument, but in accounting for its acceptance. 

Thus Malthus spends infinite pains in showing that all 
nations we know of are so prolific that their numbers would 
have increased rapidly and constantly if it had not been for 
the positive check in the shape of starvation, disease, war, and 
infanticide, and the preventive check in the shape of late 
marriages or celibacy. But this does not go one step towards 
proving that the starvation, disease, war, infanticide, and most 
misery and vice have been due to increase of population. It 
is no use to say they might be ; for the point is what was their 
cause, not what might have been. It is no use again to say 
that misery has in fact been due in some cases to overpopu- 
lation. Likely enough this is true, notably in small islands or 
remote mountain valleys where the inhabitants have been 
unable or unwilling to send out colonies ; but this is no proof 
or presumption that the misery in whole countries like 
England or Belgium, or Italy, or Bengal, is due to population 
pressing on the soil ; for then because some sickness and 
death is due to hydrophobia, this would be a presumption 
that all sickness and death is due to hydrophobia. The truth 
is that in all, or almost all, the countries cited by Malthus or 
by modern Malthusians as examples of overpopulation, we 
can find abundant causes of the vice and misery among 
them in human injustice, violence, and corruption; and 
we find as well abundant physical resources for the actual 
inhabitants. (An explanation in detail of the three cases 
of Ireland, British India, and England, is given in the 
present writer's Groundwork of Economics, pp. 618 — 629.) 

The reasons that account for the prevalence of 
the delusion on overpopulation are partly historical. 
The knowledge of the rapid possible increase of 
population, as seen by the example of North 
America and the simultaneous knowledge of the 


law of diminishing returns, deeply impressed 
the imagination of the age of Malthus, and 
made the increase of the human race appear 
as a terrible and mischievous force ; so that 
overpopulation, instead of being looked on as a 
mere possible source of misery, appeared as a 
probable, nay, even the chief and actual source ; 
though in fact nothing could be more untrue. And 
when the opponents of Malthusianism, instead of 
explaining the real significance of the law of 
diminishing returns and its connection with the law 
of increasing returns, with colonization and with 
industrial progress, have proceeded to deny its 
existence (as Carey, Bastiat, and Mr. Henry George), 
they naturally have only confirmed the Malthusians 
in their belief. Similarly, the unfortunate attempts 
(as of Doubleday, Proudhon, Mr. Herbert Spencer, 
and M. Tallquist), to show that fecundity lessened 
with increase of wealth, or of good food, or of in- 
telligence. And the theory of the wage fund (to be 
examined in the fourth chapter of the Third Book), 
fancying there was a definite sum to be distributed 
as wages among labourers, so that the more 
numerous they were, the less w r as the portion of 
each individual, and that a limitation of their 
numbers was thus the only remedy for low wages — 
this theory helped to maintain the Malthusian 
delusion that multiplication was the cause of misery. 

ides, Malthusianism appealed to the bad sidi 
our nature, was a ready weapon against Christian 

hing on morals and almsgiving, an argument 
Divine Providence, an excuse for all sorts of 


neglect or oppression of the poor by the rich, a 
fatal discouragement to all works of social reform. 
And the consequences have been calamitous : 
generous enthusiasm dulled, social reformers and 
philanthropists turned aside on a false track, the 
chief English work on economics since the Wealth 
of Nations, namely, John Stuart Mill's Political 
Economy spoilt by the constant infection of this 
immoral delusion ; moreover, a growth in recent 
times of a vile literature and abominable proposals 
that cannot even be named, and in general a blind- 
ness to facts, a blindness to history, a blindness to 
the essential features of sound domestic and national 
life, so that a living American economist of great and 
deserved repute can gravely hold up for admiration 
as an example of "prudence" and of "a rising 
standard of living," the sterile families of France 
and New England. 

Pitfalls, (i) To say with a Lord Chief Justice in a 
celebrated trial, that population has a tendency to increase 
faster than the means of subsistence, and that consequently 
there must be a vast number of persons on whom poverty 
presses sadly and heavily. For if by tendency is meant an 
inclination in a particular direction that will prevail if nothing 
gets in the way, the first part of the proposition can indeed 
be let pass, but wholly fails to be a ground for the second 
part. As well might we say because of the undeniable 
tendency of men to fight, that consequently mankind was in 
danger of extinction, if not already like the Kilkenny cats 
extinct. But if by tendency we mean not merely one inclina- 
tion that will only take its place among a hundred others as 
a contributor to the result, but an inclination that is almost 
sure to prevail and produce its particular result — that it will 
prevail unless something extraordinary happens — then the 
second part of the above proposition does indeed follow from 
the first, but the first part, as we have seen in this chapter, 
is untrue. 


(2) To say that because there are numbers of poor people 
or, as we now say, swarms of paupers, that the numbers or 
the swarming are the cause of the poverty ; for this is like 
saying that the cause of heart disease is the heart, and the 
preventive check is to be heartless. 

(3) To say that the power of doubling in 30 years is that 
" of multiplying a million-fold in 600 years and a billion-fold 
in 1200." For though as an arithmetical proposition it is 
right, as an economic proposition it is wrong, being either 
meaningless and thus wasting the student's time, or else 
implying that the same forces and influences that cause 
particular countries or bodies of men to double their numbers 
in a given 30 years, will be in operation each succeeding 30 
years, and that dreadful things will happen unless multi- 
plication can be checked. And this is a most misleading 
implication, as we have sufficiently seen. Indeed the 
dragging in of the big figures of geometrical progression 
only serves by appalling the imagination to weaken the 

(4) To say that colonists in a new country after they are 
numerous enough to profit by the law of increasing returns 
and can enjoy the advantages of the industrial progress 
developed in old countries, and can enjoy at the same time 
the rich and abundant land of new countries, are foolish to 
throw away this fine position because they will not " check 
reproduction at the line of the highest per capita production 
of food, clothing, shelter, and fuel." For in the nursery we 
should have learnt that we cannot both eat our cake and 
keep it; and this per capita maximum implies moral qualities 
which only large families can provide and which are withered 
up by sterility ; so that in the nature of things that great 
abundance is accidental and temporary, a fact we might 
have known, having been told that in the sweat of our brow 
we should eat our bread ; and a fact which should cause us 
no tears, inasmuch as the Christian ideal requires only an 
adequate production of food, clothing, shelter and fuel, not 
a 1 1 1 a x i 1 1 1 1 1 1 1 1 : those economic goods of which it does require 
a maximum being of a higher character. 

I To say that "through the dominion of the imperious 
instinct (of reproduction , Dearly all the communities of men 
are under tb tanl imminence of being swept away into 

ry, squalor, and d ." and that this doctrine (of 

Malthuaianism) "has stood onshattered, impregnable amid 
all the controversy thai has raged around it." Forthe first 
proposition . the error explained La the fin I oi 

of pitfalls, the only diff< being that it m 


the evil imminent instead of actual ; and the second proposi- 
tion is superfluous if the arguments for Malthusianism are 
valid, and if they are invalid, is untrue. 

From the foregoing discussions on the family 
and population it ought to be evident that the 
business of every wise and Christian Government 
in these matters is two-fold : first, by the civil laws 
on marriage, on family property, on paternal power, 
and on public morals, to foster and protect Christian 
family life ; secondly, wherever it is needed to 
facilitate, according to the circumstances of the 
country, either emigration or immigration. But 
attempts of the civil power to drive people into 
marriage or to drive them away from it, like the 
attempts of meddling, muddling, anti-clerical auto- 
crats of Europe in the seventeenth and eighteenth 
centuries, are either foolish or mischievous. 

The English poor law of George III.'s reign, meant to 
encourage population, and the "reformed" poor law, meant 
to repress it, have both been injurious, though in different 
ways, to Christian family life, and hence have both been 
promoters of misery. In Canada under the old French 
monarchy penalties were imposed on the unmarried, that 
the colony might grow fast in the face of its English rivals. 
This ordinance was probably ineffectual rather than 
mischievous; whereas the many disgraceful laws in various 
German States, giving the parish a veto on the marriage of 
poor people, was a fruitful source of immorality. Such laws 
in Bavaria were not abolished till 1868; and the weakness 
of Austria and South Germany compared with Prussia may 
have been in part due to the freedom of the Northern State 
from this degrading tyranny. 

Indirectly indeed all good Governments favour 
the increase of population by fostering the develop- 
ment of resources, turning to account the capacities 
of land and people for agriculture, mining, manu- 


factures, and commerce, and hindering as far as 
possible all misdirected production and consump- 
tion, all waste and destruction. How far what is 
known as a protective tariff can be used for such 
ends we shall see in the next Book ; and we shall 
see in the next chapter how far a disastrous waste 
of national resources can be checked by sumptuary 
laws. Here let us look at certain barriers which 
prevent the increase or even the subsistence of the 
actual population of a country, and which can be 
called by such names as artificial sterilization, or 
extensification, or the arrest of proper intensification, 
or the withholding of national resources. 

Such barriers imply that much property belongs 
to comparatively few owners, and that their owner- 
ship is more or less absolute and uncontrolled. 
Then motives of profit or of pleasure may induce 
them to keep their property undercultivated or even 
to lessen the previous intensity of production. And 
if many owners do this the nation may be seriously 
affected in the number of its inhabitants. 

Let us use some figures to explain the operation of the 
withholding of resources. Suppose an absolute owner of 
land from which, besides his own family, a hundred other 
families, all peasants, get their living; each peasant family 
producing goods of the average value of £50 a year, which 
e to pay £10 a year as rent to the owner, Leaving /40 as 
net revenue for themselves. The estate shows ;i population 
of 101 families and £$,OO0 net revenue, Of which £4,000 goes to 

the pea lantry and ( > the owner. Now in a commercial 

society it may become the pecuniary interest of this Ownei 

to le en the intensity of cultivation, throwing s< imall 

farms into one large one, producing wool, meat, 01 dairy 
prod le, not for consumption on the estate, and 

turn. ble land into pasture, or ra Indeed, but 

on) < ropa on .1 


small area. With this changed form of production 50 
families now cultivate the whole estate instead of 100, each 
producing the value of £65 annually instead of £50, and 
paying £25 to the owner instead of £10. His revenue, 
therefore, is now £1,250 instead of £1,000, but from the point 
of view of public welfare and national strength that portion 
•of the country shows a net revenue shrunk from £5,000 to 
£3,250, and a population scarce over half what it was before. 

These dry figures represent a tearful page in 

history ; for where the two conditions precedent 

have come together, namely, unrestraint of those 

in power and a commercial situation making it the 

private interest of the powerful to lessen cultivation, 

the same consequences have ensued, and thousands 

of families have been cast forth from their homes 

;amid incredible sufferings. Notable instances have 

been, Italy under the Roman Republic, England 

-from the end of the fifteenth to the end of the 

sixteenth century, the Highlands of Scotland in the 

second half of the eighteenth century, and Ireland 

in the nineteenth century. 

Thus, to take a very early and single instance, it happened 
in the manor of Stretton Baskerville in Warwickshire, that 
•" Thomas Twyford having begun the depopulation thereof in 
4 Henry VII. decaying four messuages and three cottages, 
•whereunto 160 acres of errable land belonged, sold it to Henry 
Smith, gentleman. Which Henry following that example 
in 9 Henry VII. enclosed 640 acres of land more, whereby 
twelve messuages and four cottages fell to ruine, and 80 
persons there inhabiting, being employed about tillage and 
husbandry, were constrained to depart thence and live 
miserably. By means whereof, the church grew to such 
ruine, that it was of no other use than for the shelter of 
^cattle, being with the churchyard wretchedly prophaned, to 
the evil example of others." (Dugdale, cited by Professor 
•Cunningham, Industry and Commerce, p. 399.) 

Such a process may not indeed result in a 
material loss to the country as a whole ; for the 


displaced cultivators may be shifted to some other 
district or new employment, and the extensification 
on the cleared estate may be compensated by 
intensification in agriculture or manufactures else- 
where. But failing such transfer, and where the 
ejected cultivators have only exile or beggary or 
starvation to choose from, the results on national 
power and wealth may be startling. So in less than 
half a century Ireland has lost about four millions 
of her inhabitants, or nearly fifty in every hundred ; 
and much of her surface has sunk back into a dismal 
waste of heather, or thistles, or moss. 

An increase of a country's population can in 
like manner be checked where much of the land is 
held in large properties, or rather where the laws 
and customs of holding land are such that farms 
continue in existence extended over a large surface 
and worked so as to yield but a scanty produce. 
Thus probably in the eastern provinces of Prussia 
and in the south of Portugal, where the scanty 
population and extensity of the agriculture form a 
striking contrast to the well-peopled regions along 
the Rhine in the one monarchy and along the 
Douro in the other. 

Pitfall. To call a country overpopulated because owing to 

the extensity of extensification of production many of its 

inhabitants cannot get a living within it. For such language 

is calculated to confuse the most opposite evils requiring the 

opposite remedies. Nor is it much of ;m Improvement 

thai the case before us is one ot relative overpopulation, 

and that overpopulation .'is defined above in the text is to be 
called «■ overpopulation. For this i,i | phi >mes 

atradiction in terms: I cannot think oi over- 
population without thinking of the relation >t Dumbei and 
and if where there i^ a withholding ol national 


resources we are to speak of the concomitant distress as 
overpopulation, we must say that Paris was overpeopled in 
the siege of 1870, nay, that the case of every ship where 
provisions have run sadly short is a sad case of overpopula- 

Observe that indolence or pleasure as well as the desire 
of profit may cause the withholding of resources, and pleasure- 
grounds or hunting-grounds may be so extended as to cause a 
serious loss to agriculture, as probably in ancient Latium and 
perhaps in modern Scotland. But the nature of the case 
keeps this evil within bounds, as the owners must draw a 
revenue from elsewhere ; and the presence of wealthy people 
during portions of the year allows no small number of the 
inhabitants to gain a livelihood. 

The resources which a country possesses in its 
mines, quarries, and fisheries, can in the same way 
lie unused or undeveloped, preventing many getting 
a living, as they might otherwise do, within its 

In the case of manufactures, transport, and 
commerce, we see an analogous phenomenon. 
Where indeed there is no monopoly the evil is only 
transitory, as when mills are run half time, furnaces 
blown out, goods withheld from sale, and when 
banks refuse to give their ordinary help in the 
mechanism of trade. Thus means of production 
lie idle or only half used, and many workmen get 
no work or only half work, and for a time there are 
"too many" poor people in the country, just as 
after wholesale evictions, only with the difference 
that within a few months or a year or two employ- 
ment will be found within the country in the one 
case but not in the other. These temporary cessa- 
tions of production will be more fully explained in 
the tenth chapter of the next Book, and also the 
nature of monopolies will be explained in the 


fourth chapter, and how it can be the interest of 
monopolists, as it often is, to keep down production 
and draw a larger revenue for themselves by selling 
fewer goods at higher prices, or carrying fewer 
passengers and goods at higher fares, than more 
at lower prices or fares. 

But a popular, humane, and Christian Govern- 
ment will hinder all forms of withholding national 
resources, whether this evil takes the shape of 
monopoly prices, or the " clearance " of estates, or 
any other shape. 

The charge against machinery of injuring the poorer 
classes has already been answered. No doubt it is likely 
enough that the introduction of machinery may at first cause 
less labour to be applied to the branch of industry affected. 
But this is not likely to last long, always presuming there is 
no monopoly. For all the consumers of the now cheapened 
product will have some of their revenue set free and will 
probably employ a portion of it so as to foster the production 
either of more of the cheapened product or more of something 
else, and perhaps a portion of it in such consumption as will 
require the assistance of non-industrial labour. Hence the 
more versatile among the displaced workmen are likely to 
find speedy employment within the country. The more 
highly specialized workmen may indeed require some help, 
on the manner of which nothing general can be said, so 
various are the circumstances, except only that if the nation 
at large has profited by the invention which has superseded 
workmen, they seem to have a claim for compensation 
from the public revenue ; if some particular trade only has 
profited, then from the funds of that trade. 

Very different indeed is the case when an irresponsible 

monopoly controls some industry; for then no one can tt II 

the extent or duration of the injury which mechanical inven- 

aable or induce the monopolists to inflict en the 

workpeople or on the nation. Hut let the blame fall on those 

:i tii< pervei ted in titutions of man, 
not on the innocent and lifeiC m<< ban! m of COppei m 



The meaning of consumption or enjoyment, namely, 
the act of using economic goods for immediate 
personal satisfaction, has been sufficiently explained 
in the first chapter. Here let us see what is to be 
said about consumption in general, and the manner, 
not of getting our net revenue, but of spending it ; 
and then let us examine the particular departments 
of such spending. 

There is an art in consumption no less than in 
production ; and in the one case as in the other we 
may, quite distinct from any question of morality, 
go the wrong way to a particular end. Thus the 
mistakes of a stupid farmer or unskilful tradesman 
have their counterpart in the mistakes of the ill- 
taught housewife who fails to provide as well for 
her husband and children as her neighbour does 
with half the income ; or in the mistakes of many 
excursionists and travellers on pleasure bent, who 
at half the cost might have got twice the pleasure. 
Only remember in economic science that merely 
to make calculations of pleasure or of pain is to 
be inaccurate and misleading, the enjoyment of 



economic goods being inseparably bound up with 
questions of morality. 

For example, many goods can be used in common with 
immense advantage because a large number of persons can 
use them at the same time or one after the other, and each 
person be almost as well served as if he had the sole and 
separate use of them. Public libraries, museums, picture- 
galleries, parks, schools, baths, wash-houses, restaurants, 
concert-rooms, are examples. But the proposal of the 
Communists to carry this common use further, to suppress 
all private ownership and private use of the objects of enjoy- 
ment, and to gather the inhabitants into vast palaces instead 
of scattered dwellings, we instantly reject as being fatal to 
family life, nor will hear their pleas about the wonderful 
economies and the multiplication of the degrees of pleasure, 
such arithmetic being out of place. The real point of interest 
is that many of the technical advantages of use in common 
are applicable in domestic life without any injury to that life 
where joint families are possible ; on which enough has been 
said in the seventh chapter. 

Again, the great phenomenon of misdirected consumption 
already described in the fourth chapter, though it implies 
a great technical mistake, is something much more than a 
technical mistake, being both an effect and a cause of moral 

The Christian Church puts among her counsels 
of perfection the abandonment of all private wealth 
and the consumption of only the necessaries of life. 
But she also teaches us that a supernatural call, 
which only some receive, is required for the practice 
of this perfection. And although all Christians are 
bound by a precept to be detached from all earthly 
goods and to practise self-sacrifice, this is in no 
contradiction with the further doctrine that objects 
of enjoyment are not an evil in themselves, and 
that the use of them in a reasonable measure is a 

help towards our fulfilling the pur] of our life. 

To understand this measure we musl distinguish 
a necessarie uperfluiti 


The necessaries of life {bona natures necessaria) are 
the food, the clothing, the shelter, and whatever 
else is needful, according to the circumstances of 
their work, constitution, and surroundings, to keep 
men in good health, not half-starved and inefficient. 
That every one should enjoy these goods is obvious. 

Decencies (bona statui necessaria) are the goods 
proper to a man's station in life, without which he 
cannot decently pass his life according to the con- 
dition and rank both of himself and of others he 
has to provide for. Naturally such goods vary with 
a man's station, but for the lowest are neither few 
nor unimportant. A house, for example, to be a fit 
home for a family, must be much more than the 
shelter indispensable for health ; and it is unseemly 
for the lowest class, though health may require no 
more, to be clad in a shapeless patchwork of rags. 
And so far from its being a duty to forego the 
enjoyment of this class of goods, it would as a rule 
be reprehensible for any one to give away so much 
of his property that from the residue he could not 
live decently (convenienter) according to his own 
station in life and the work that has fallen to him. 
For, as St. Thomas says, no one should live an 
unbecoming life. 

Superfluities (bona nature? et statui sicperflua) are all 
economic goods not falling under the two previous 
heads of necessaries or decencies. They are of two 
kinds, one to be called ornaments or elegancies, and 
the use of which, if not praiseworthy, is at least 
justifiable ; the other to be called luxuries, the use of 
which is always reprehensible. No hard and fast 


line separates the two kinds of superfluities, but yet 
they can be adequately distinguished. Goods which 
serve primarily towards intellectual or aesthetic 
training, or towards the enjoyment of science, 
literature, and art, are not to be called luxuries, 
nor again such goods as serve to afford ordinary 
comforts in home life, to avert fatigue in travel- 
ling, or to give amusements within limits which 
reason in each given case and in each station of 
life can without much difficulty assign. Moreover, 
on certain occasions of festivity and under other 
special circumstances, elaborate and costly goods 
may be enjoyed without blame, and the faithful, 
resplendent in silken garments, are invited in the 
ritual of the Church to praise God the Author of all 
good things. In particular where the superfluity 
is enjoyed in common with other persons there is 
less likelihood of luxury, more room for ornament, 
and a certain magnificence is suitable for the festivals 
of the State, and above all for religious worship. 

Superfluities are to be denounced as luxuries 
in the following cases : (a) When they minister 
to physical excess, as over-eating, drunkenness, 
or taking opium otherwise than as a medicine. 
(b) When there is a disproportion between the 
sum spent on them and the revenue of the man 
who enjoys them. In this aspect the same physical 
object may be a luxury to one man and not to 
another, a luxury in one place and period and not 
Mother, as butchers' meat twice a day, a luxury 

u English ploughman, not to a squire, or tea 

twice a. day, a luxury to a London seamstress a 


century ago, but not so now. (c) When there is 
a disproportion between the sum spent on them 
and the result, such as food, of which the main 
merit is the costliness, not the taste or the whole- 
someness, as when the Romans drank wine in 
which pearls had been dissolved, or ate dishes of 
trained singing birds ; or like mere ostentation in 
dress and perverse exaggerations of the fashions, as 
men's shoes in the fourteenth century two feet long„ 
(d) When in their preparation or enjoyment they 
inevitably bring suffering on others, as the case of 
dresses or wall papers of such colour or texture as 
only to be made by some unhealthy process, or of 
a park made by destroying the homes of the poor. 

The reader may perhaps ask the meaning and justification 
of different stations of life alluded to above. But he must 
take them for granted till in the fifth and sixth chapters of 
the Third Book he will find a full answer to his question. 

The term luxuries is used in various senses. Adam Smith 
makes it include all goods except the absolute necessaries 
of life, and the decencies of the lowest rank of people, both 
of which kinds of goods he includes under the term neces- 
saries. Other writers justly narrow this very wide definition 
of luxuries, but still allow the term to include justifiable or 
even praiseworthy enjoyment, which seems a pity, as the 
word is so connected historically with blame. Professor 
Marshall uses the phrase conventional necessaries to express 
decencies as opposed to strict necessaries. 

Pitfalls, (i) To confuse the Evangelical counsels with the 
precepts, and to say that according to "Catholic Ethics" 
we are to give away in alms all but the necessaries of life r 
and that when Christian moralists condemn luxury, they 
condemn ornaments and decencies. Unfortunately a warning 
against such gross misrepresentations is not superfluous. 

(2) To say that the great means of promoting civilization 
is to excite new wants, to gratify which men will be aroused 
to exertion and invention. This is one of the characteristic 
doctrines of classical Political Economy, and its prevalence 
is to be explained on the following grounds. First, because 
many uncivilized tribes appeared careless of many of the 



goods really needful if man is to lead a rational existence 
in an orderly home ; and because in such cases the deside- 
ratum seemed to be that they should be aroused to wish 
for such goods; and because some degraded people among 
civilized nations appeared in a similar plight : the economic 
doctors rushed to the conclusion that the medicine for such- 
cases of social disease was a wholesome article of ordinary 
diet. Hence a blow was struck at the doctrine of reason and 
Christianity, that man must make war on his passions of 
avarice, ostentation, and sensuality ; nay, the practice — truly 
diabolical — of instilling among poor savages the passion for 
strong drink so as to arouse their activity, has found an 
apology in Political Economy. Then again the mode of life 
of the urban middle classes of England and France in the 
middle of the nineteenth century was looked on as a model — 
Heaven save us — for all classes, and those who lived other- 
wise to be more or less savages ; and hence there was blind- 
ness to the beauty and dignity of the frugal and simple life 
of a God-fearing peasantry, with its few requirements but 
true culture and nobility, such as pourtrayed, for example,, 
in the Spanish tales of Fernan Cabellero. Lastly, many 
economists, deluded by Malthusianism, have preached up> 
the benefits of new wants to " antagonize the procrcative 
force," and praised the desire of decencies as "the great 
preventive check to population," imagining — it is mostly 
imagination — a standard of life, that is, a definite amount of 
wealth which the lower classes insist on having before they 
will increase their numbers ; and telling us, that above all 
things it is needful that this standard be high. So one illusion 
supports another. 

(3) To say that the luxurious expenditure of the rich is- 
needed for trade and the support of the poor. This doctrine 
may be called the bete noir of the classical economists, the 
if their own favoured doctrine about new wants is true, it 
is hard to see how this other poor belaboured doctrine is 
altogether false. False it i.-. undoubtedly in one sense; for 
one man's food and clothing cannot at the same time support 
and shelter another man ; and if I give up using lace and 
• t, the labour and property devoted t<> its production can 
be turned to some other purpose, such as making u.iriu 

underclothing for the poor. Bui the proposition in question 
is only partly mistaken : in pari it 1 
of the following truths : (a) That if the alternative 1 I 
on the one hand, withholding national resources, leaving 
<1 mills unworked or little won already in the 

. and on tin: othc r hand, " lllXUl 1 

unption, the latter alternative if best for the poor, 



the makers of the " luxuries" find employment, and often the 
process of consumption requires servants, like grooms, game- 
keepers, and cooks, who can get a living by their ministrations. 
(b) That if suddenly consumption were to cease without any 
withholding of resources, much labour and property would 
have been misdirected into a particular industry to supply 
the " luxury," and would be rendered inefficient, (c) That 
a great stimulus to exertion and great preservative from 
vicious habits, and consequently a great promoter of national 
wealth is precisely the so-called " unproductive " consumption 
of delicacies by sick or old people, or by little children : to 
provide which is often the moral and material salvation of 
the young and the strong, (d) That inequality is a good 
thing, and the existence of a rich class indirectly a benefit 
to the whole nation ; on which we shall speak in the sixth 
chapter of the next Book. 

Now let us turn from consumption in general 
to make a brief survey of particular categories, 
looking especially to see how far public authorities 
can check or foster consumption by sumptuary 
laws, or prevent any calamitous deficiency by 
humane legislation. 

As the details of the theory of consumption, though it is 
generally recognized that they form a part of economic 
science, are not to be found in the ordinary treatises in 
English on Political Economy, the present writer can refer 
those to whom Le Play's large work, Les ouvriers Europeens, 
is not accessible, to his own Groundwork of Economics, chaps, 
vii. to xi. 



Let us distinguish for convenience ten principal 
heads of consumption : food, dwelling, fuel, clothing, 
furniture, medicine, education, worship, recreation, 
and justice. 

I. Food, the first head of consumption, is the 
primary and incessant want of man ; a painful search 
after food and water is the almost ceaseless occu- 
pation of the poor natives in. the Western and ill- 
watered half of Australia ; while even in the most 
cultured of States, in Saxony in the middle of the 
nineteenth century, the expenditure on food and 
drink probably amounted in most families to more 
than one-half of the whole. 

curate calculations arc difficult, because we ou^ht to 

exclude from this head all elaborate expenses on food for 

banquets, which should be included under recreation, and — 

important exclusion — all drinking that is not a 

re adjund and accessory to taking food. 

It can 1": laid down that among most civili 

nations the basis of nourishment has been some 

grain, with the addition of some nitty substance 

(like milk or vegetable oil). Bui pting this 

iblance, we meet the most urpri 


diversity in the common foods of different nations, 
regions, and classes, and the most striking changes 
in the course of history. 

Thus milk and the preparations from it, of prime im- 
portance among Europeans, are not touched by the three 
hundred millions and more of Chinese ; the flesh of the pig, 
of prime importance in most of Europe and in China, is 
abominable to all Mahometans and Jews; beef, the English 
national dish, Chinese are indifferent to and Hindus loath, 
as we in our turn loath the flesh of horses or asses. And 
Europe has only in recent centuries adopted tea, coffee, 
sugar, and potatoes ; Southern Europe only in recent 
centuries taken maize in large part as their staple food 
instead of barley or wheat. And whereas in Scotland in the 
sixteenth century the eels that abound there were salted 
and eaten in abundance, now the poorer classes in that 
country would as soon eat a toad as an eel. 

Why these manifold diversities exist and mani- 
fold changes have occurred is an interesting depart- 
ment of history. But their importance is not to 
be exaggerated ; for there can be many different 
courses of diet, all excellent ; man is something 
more than a stomach ; and in general the food of 
a nation is very little the cause of its welfare or 
misery, but very much the effect. 

The national dishes of every nation may be presumed 
to be peculiarly suitable to its circumstances, the result of 
long experience and traditional skill in the culinary art ; for 
example, the two national dishes of Russia, fish pie (perog) 
and cabbage soup (shtchee) ; the maize cakes (tortillas) made 
by a peculiar process in Texas and Mexico ; the stiff maize 
porridge (mamaliga) of the Roumanian peasants. But the 
art of cooking, like other arts, must be learnt and trans- 
mitted from one generation to another ; a disorganization of 
family life and irrational education may in a few years reduce 
a civilized population to the culinary level of Polynesians. 
Thus many Americans, in spite of large earnings, have no 
choice but to feed in great part on tinned provisions and 
rancid bacon ; and amid the urban population of England, 
the high wages of the workpeople fail to secure them a 


decent meal at home, because their wives have not been 
given the capacity or the wish to be good cooks ; and the 
downward progression in depraved consumption is fostered 
by the ease of buying close at hand the materials of make- 
shift meals, salted meats, sausages, pickles, abominable 
cakes and pastry, and scraps of food from the cooked-food 
shops. Whereas among the poorest classes in Russia no 
dinner is thought complete without soup. 

In other cases a bad diet is due, not to disorganized family 
life, but to external pressure, like the unhealthy stinting of 
the use of salt in parts of India because of the lamentable 
salt tax, or of milk in parts of rural England because it is all 
sent away to the towns, or the miserable diet of mouldy 
maize causing the disease known as pellagra in Northern 
Italy, due to a sad combination of economic and political 

Pitfall. To say with the vegetarians that man's teeth and 
stomach show that he ought not to be carnivorous, like 
beasts of prey, but frugivorous, and that the adoption of a 
vegetarian diet would root out disease and poverty, drunken- 
ness and licentiousness. For man's nature is to be learnt 
not merely from his structure, but from his history : he would 
be much inferior to the apes if in fact he ought to have been 
simply frugivorous like them and has not been ; the art of 
cooking renders him, unlike the apes, omnivorous ; the use 
of meat is necessary or beneficial for some kinds of bodily 
and most kinds of brain work ; nor is any extraordinary 
prevalence of misery and wickedness recorded, as on the 
vegetarian hypothesis it ought to be, among the inhabitants 
of Argentina and New Zealand, where meat has formed for 
many years the main article of every one's diet. 

Vegetarianism is to be accounted for by the sight of the 

wasteful and excessive consumption of meat, notably among 

domestic servants in the houses of the rich, with neither 

intellectual or bodily strain to justify it ; by the sight of the 

ry among many of the poorer classes from their ignorance 

of t! : '1 cheap food to be got from vegetable 

sources; and by the doctrine that animal rights and 

their life is sacred. The delusion therefore has a 

philanthropic, and ;i religi6us foundation. 

Tli*: case of (amine following tin- failure of crops 

app 1 a great exception to tin- rule that fi I 

not a cause but an effect of the condition of 

i ption, however, in most cases is 


only appearance ; for in most cases the famine, if 
not the failure, is due to preventible causes. Observe 
with care how the three stages of prevention are 
as follows : First, the prevention of failure as far as 
possible by works of irrigation, drainage, embank- 
ments, and above all the preservation or planting 
of climatic woods, that prevent or mitigate the evils 
of drought, flood, and injurious insects. Secondly,. 
the physical insurance against the evils of failure 
by multiplicity of staple crops — all are not likely 
to fail simultaneously, — by multiplicity of easily- 
intercommunicating districts — all are not likely to be 
afflicted simultaneously, — by the provision through 
storage in good years of a supply for bad years. 
Thirdly, the moral insurance against famine, that 
is, such a state of laws and customs that the food 
at hand shall reach those who are in need of it. 
Whenever we meet any serious mortality from 
famine, we may expect to find as an antecedent 
some grave neglect in one of these three stages of 

Thus the famines following the overflow of the Yellow 
River in Northern China, are probably due to neglect under 
the first head. The famine of Orissa in 1866 was mainly due 
to neglect under the second head : food had not been stored, 
and the country was accessible only by one line of road, 
approach by sea being blocked for part of the year ; and 
nearly one million people died of hunger or its effects before 
food could be brought. But the approach of steamships to 
all islands, and the spread of a network of railways over all 
continents, form a new and great precaution under this 
second head. It is otherwise with the third head. For in 
Ireland, for example, at the time of the great famine of 
1845 — 47, the greater part of the country was easily acces- 
sible, and moreover, of the two great crops, potatoes and 
grain, only the potatoes has failed, while the grain was 



scattered in abundance over the face of the country. But 
the laws and customs that prevailed allowed the grain to 
be removed, and rather more than a million people to 
die of hunger or its effects. Still more destructive was the 
famine that from 1876 to 1878 swept away more than five 
million victims in various parts of India, not inaccessible like 
Orissa, but whither food might have been carried, and whence 
in the midst of famine, food was in fact exported. 

The particular way of taking the proper pre- 
cautions must vary with the country and the 
circumstances. Observe in general two points : 
first, that the less wide the area in communication, 
or the less efficient the means of communication, 
and the greater the risk of a wide-spread failure 
of crops, the more needful the accumulation of local 
stores of food sufficient for one or two years' con- 
sumption, a common precaution in old times in 
India ; secondly, that the feeding of the people 
should be a first charge on the food grown in the 
country, and that it should not be withheld or taken 
from them on the ground that a better price can 
be got for it from the well-to-do or from foreigners 
than from distressed and starving common people. 

Pitfalls. (1) To think that if the physical precautions 

d and there is really not enough food 

available, that moral precautions, such as compulsory sale 

of bread at fixed prices, will ho of much avail. For divide 

one 1 011 will, you ran never make it Iced ten n 

(2) To say with Adam Smith that the unrestrained, un- 
limited freedom of the corn trade i^ the onh effectual pn 
tentative of the mi i a famine. For in reality such 

lorn ma; famine away supp 

from poor count '1 districts to rich; and even it not 

•he misery of a poor j" p have 

nnol help them ; foi fr< 
'. not ir 

• the popular delusion 1 mention* d ; 


partly the irrational worship of laissez /aire; partly that 
characteristic fallacy of inductive reasoning, the passage from 
a particular premiss to a general conclusion; and because 
England, wealthy, powerful, accessible in all parts, and with 
most of her poor in the position of labourers with masters 
interested in their not starving — because England in such 
circumstances could well trust to attracting the supplies of 
-eager corn merchants in any scarcity, it was imagined that 
similar supplies would flow to any famine-stricken co'untry. 
But whatever the cause of the delusion, the effect has been 
that within the British Empire during the last half-century 
many millions have perished, and that terrible tragedy, where 
-children die of hunger in the sight of their parents, has been 
witnessed on a grand scale. 

(3) To say that famines are really due to overpopulation, 
and that if the people had not multiplied so recklessly they 
would not thus have suffered. But as we have seen, over- 
population is an exceptional phenomenon; the famines of 
history, as distinct from those of fancy, have not been due 
.to any pressure on the soil ; the failure of crops is not the 
least more likely to happen where cultivation is intensive 
than where it is extensive, indeed less likely, because of the 
greater variety of crops ; and during the last fifty years y 
famines have appeared alike where the population was dense, 
as in Oudh and Bengal, where moderate, as in Ireland, 
Madras, Bombay, Northern China, and where thin, as in 
Persia, Rajputana, Asia Minor, Northern Brazil. 

II. Dwellings form the second of the principal 
heads of consumption. In cold or damp regions 
-considerable outlay is required for a healthy dwell- 
ing even of a poor family, though where building 
.material is abundant close at hand, like timber 
in mediaeval Europe, the outlay is reduced to a 
minimum. How to reckon this outlay is often 
difficult; for where most people live in dwellings 
•of their own, the annual cost is mostly in the shape 
-of maintenance and repair, while considerable ex- 
penditure is only required at distant intervals. 
And where the dwelling serves in part as a work- 
shop, it is in part to be reckoned as belonging to 


the capital of the occupants, not to their objects 
of enjoyment. The calculation is easier where the 
practice is common of living in hired dwellings ; 
and in such cases we may lay down as a rough 
and ready rule, that the portion of a family's net 
income devoted to this head of expenditure ought 
not greatly to exceed ten per cent, of the whole 
income, and that if it rises to fifteen, twenty, or 
even twenty-five per cent., as in many modern 
towns, we may strongly suspect some oppression or 
abuse to be the cause. 

The varieties of man's dwellings according to 
time, country, climate, building materials, skill in 
building, artistic sense, riches, rank, trade, laws of 
ownership, conditions of family life, of religion, and 
of morality, are almost endless, and are one of 
the main departments of economic history. But 
being more effects than causes they can here be 
passed by. 

Thus the vast hotels of old France were a sign, not a cause, 
of the prevalence there of joint-families: the small space 
allotted to nurseries in modern French houses, a sign not 
a cause of habitual small families. So again the common 
dining-hails for masters and servants in old castles, and 

lute separation in modern genteel residences of the 
servants' department from the rest of the house, are much 

alts than causes of the familiarity between different 
ranks in the one case, and the separation in the other. So, 

too, th< y of Hindu famih life, and the separation of 

the sexes among Mahometans, find material expression in 

their dwellings, but aie not caused by the dwellings. 

vertheless, among the poorer classes tin,' 

'.ling can have ;i powerful influence for good 

or evil. Tin: ideal is thai each family should 

I in the secure pOSSe ion <>( a house neither 


unhealthy, nor overcrowded, nor overcharged, and 
that adequate garden ground should surround it to 
enable the housewife and young children to find, 
with the plants, the animals, and the domestic 
industries, occupation and amusement at home. 
And the experience of past and present times 
shows that for the country people this ideal can 
be realized. 

Realized it is largely at present in the United States and 
in the Sclavonic countries, and was during the last century 
in many parts of Europe, and under the Plantagenets in our 
own country. Observe that by secure is not meant that the 
head of the house is a full owner or peasant proprietor ; for 
such a family may be very insecure, liable to be sold up, and 
turned out like so many luckless peasants in modern Italy. 
But we mean that the family is secure against eviction, 
whether by creditor or landlord. For rural England there 
is pressing need of such alteration in the law that every 
agricultural labourer could be endowed with a secure home- 
stead, namely, with a cottage and at least an acre of good 
ground around it or close to it, and be unable to borrow on 
this homestead, or sell it, or bequeath it away from his family. 
If such house and holding were charged with a perpetual 
quit-rent of half a crown a week, such sum would give a 
reasonable interest on the original outlay. 

It is otherwise with the towns ; and how to 
provide proper dwellings for the vast numbers of 
people now heaped together, is one of the most 
difficult problems and yet one of the most urgent. 
An explanation has already been given in the sixth 
chapter of the tremendous fact of urban concentration. 
Here we have to deal with its effects, how great 
multitudes in England and France, in Germany and 
the United States, have come to live in new and 
sad conditions. There is nothing new indeed in 
the existence of horrible quarters in great cities, the 


resort of extreme misery or extreme depravity : we 
have nothing worse to show than Hogarth's " Gin 
Lane.*' The novelty is not in the extremity of 
horrors, but in the vast number of sufferers, and 
the large percentage of the inhabitants who lack a 
habitation proper to their state of life. 

The evil, for which the Germans have the con- 
venient term, die Wohmnigsnoth, has a triple aspect, 
physical, moral, and financial ; millions of families 
in those four countries named above, not to speak 
of other countries, are compelled by their circum- 
stances to live in unhealthy dwellings, ill-drained, 
ill-ventilated, bad in construction, materials, and 
situation, lacking space and conveniences ; are 
compelled again to be so crowded together and 
brought into such close quarters with others, that 
orderly family life, discipline, and morality are very 
difficult to preserve ; are compelled again to pay 
for this wretched accommodation a sum that often 
exceeds twenty per cent, of their whole expenditure. 
And the three evils of unhealthiness, overcrowding, 
and extortion, foster one another and tend to 
produce a sickly, immoral, and helpless multitude. 
Thus an unhealthy house produces sickness, sickness 
rty, poverty makes resistance to extortionate 
rent more hopeless than ever, and extortionate rent 
drives to the necessity of taking in lodgers, which 
in its turn may be ruinous to morality, and the ruin 
of morality brings further poverty and sickn< 
and the d< rd course becomes more and v. 

irresistibl . 


The particular details can be filled in according to the 
particular circumstances of London, or Liverpool, or Man- 
chester, or Glasgow, or Berlin, or Paris, or New York. The 
"tenement-houses" of New York, unknown in the earlier 
part of this century, have spread to other cities of the Union, 
and display a spectacle of horror not often matched in the 
Old World. Among ourselves the evil has been familiar to 
philanthropists for more than forty years past, and perio- 
dically has been brought, as they say, before the general 
public, and laws passed or enforced, and other measures 
taken and associations formed, to abate the evil, but mostly 
in vain. For the vile plant requires not pruning, but up- 

Pitfalls, (i) To exaggerate the evil and imagine universal 
and horrible moral degradation in the "slums;" when in 
fact among the degraded are elements of good, and above all 
we can find amid the most miserable and unclean physical 
surroundings honest and pious families, like many of the poor 
Irish in Poplar in East London, making the best of evil 
circumstances : for religion can make beautiful flowers of 
virtue to blossom in strange places. 

(2) To argue that because for those with the habits and in 
the moral condition of modern English urban or even rural 
workpeople, decent family life cannot be expected unless 
they are provided with three sleeping-rooms, or two at the 
very least, therefore all countries at all times where such 
accommodation has been absent, must have been morally 
degraded. In reality man is free, is not a slave of his 
surroundings ; the influence of religion is all-powerful ; omnia 
munda mundis ; great variety has existed among different 
people, not concerning the fact and the need of modesty, 
but concerning the garments and the privacy required to 
secure it; and thus to confuse what is needed by the sancta 
simplicitas of a pious country folk, with what is needed amid 
the sharp-witted licentiousness of towns, is to make about as 
big a blunder as can be made. A classical example of the 
combination of bad dwellings with good life was afforded by 
rural Ireland during the first half of the nineteenth century, 
when several hundred thousand families lived each in a mud 
cabin containing one single room, and yet were a model in 
their morals for every age and time. 

(3) To ignore the evil of urban Wohnungsnoth, and not to 
recognize that it is a new evil, and one which for great 
multitudes in the most civilized States snatches from them 
at one fell swoop almost all the advantages of a century of 
industrial progress. 


(4) To admit the evil and gaze on it with sorrowful help' 
lessness as irremediable ; when in fact there is a way here 
if there is a will. 

The circumstances of each country require 
separate consideration ; but in general the principal 
and direct means of reformation will be the two 
following : 

First, sanitary police regulations, such as the 
punishment of all owners of overcrowded dwellings, 
or of dwellings not provided with proper sanitary 
appliances ; prohibition of all new buildings without 
proper provision of space, light, ventilation, drainage, 
water supply, and other adjuncts according to local 
specification ; sequestration and demolition of in- 
sanitary dwellings whose owners cannot or will not 
replace them. 

But observe that such negative provisions are 
not enough ; for if they constituted the whole of 
the measures of reform instead of a part, they would 
lead to a contradiction, inasmuch as the increased 
expense of erecting or keeping up dwellings would 
so lessen the supply of them and intensify the 
demand for them, that the action of the law would 
create an almost irresistible temptation to its 
violation. We need therefore some positive pro- 

Secondly, let there be responsibility of em plovers 
and owners for the decent dwellings of those who 
work in their employment or on their property, 
notabrj risibility of Government, of large em- 

I , and joint-stock companies. This touches 

the root of the evil: definite j inong the 


rich and powerful would have a definite obligation ; 
what of their own accord so many philanthropic 
employers have actually done, is evidence of what 
is possible ; and if the strict enforcement of sanitary 
regulations made it a hard matter for those bound to 
provide dwellings to provide them in the towns, then 
precisely a most beneficial impetus would be given 
to decentralization ; and factories, just as they have 
moved from the centre of some manufacturing 
towns to the outskirts to allow warehouses, banks, 
and offices to occupy the centre, might be driven to 
move right away into the country or into the small 
country towns. Thus by reverting to the reasonable 
principle that the decent housing of the workmen 
in each industry shall be a first charge on the 
proceeds of that industry, we strike a real blow at 
the disastrous concentration of the people in great 

Observe that the provision by Government or 
philanthropists of cheap good dwellings in large 
towns, though an immediate relief, is likely to per- 
petuate the very evil against which it is directed, 
by increasing instead of diminishing the attractive 
powers of the town. The compulsory provision of 
cheap workmen's trains carrying them daily to rural 
or semi-rural homes is not open to the same objec- 
tion, and is a secondary method of reform by no 
means to be despised. 

Further, we can indirectly do much to allay the 
W ohnungsnoth of the towns by reforming the con- 
ditions of the country-side : if we promote rural 
family life by fit laws and customs on successions, 


on homesteads, or allotments ; if, by reasonable and 
religious schools, by rural associations, and by 
abundant recreations, we give to the country folk 
the intelligence and love of country pursuits and 
the social intercourse which the poor need more 
than the rich. And truly, supposing public autho- 
rities are to provide parks and playgrounds in cities, 
we can rightly claim that no village be without a 
similar provision ; which, moreover, can be done at 
a tenth of the cost. Only forget not that if Christian 
family life is to be destroyed, then these reforms in 
town and country will become in part unattainable 
and in part fruitless. 

III. Fuel and light may be put together as a 
third head of consumption. The amount required 
will vary with climate, occupation, dress, and 
dwellings ; the expense will further vary with the 
local abundance or scarcity of fuel. 

Thus the thick clothing of the Chinese makes them 
almost independent of fires ; a cottage with earthen walls 
and thatched roof requires far less fuel to warm it than if 
the walls were of thin brick and the roof of slate ; the poorer 
classes in the North of England profit by the local abundance 
of coal ; in former times the rural districts of Western Europe 
profited by the local abundance of wood or peat. The loss 
of this comparative advantage of the country as well .'is the. 
cheap and brilliant lighting of modem towns arc among the 
rniii' : : urban concentration. 

The three principal duties of Government in 
rd t-j fuel and light are as follows: First, to 

rent artificial scarcity of fuel and the consequent 
cruel suffering among the poor, whether the cause 
of such scarcity be warfare bel tei and 

workmen in coal-mis the abolition 


of rights of common on moors or in woods, or the 
engrossing of fuel and the raising of the price by 
combinations to an exorbitant height. 

Secondly, to prevent waste, like the destruction 
of forests, which in many cases can be checked by 
replanting being made obligatory ; or waste like 
that seen on a grand scale in England where 
millions of chimneys of dwellings and factories 
discharge unconsumed carbon, with great waste 
of heating power and great damage to vegetation, 
buildings, and furniture. Here the public weal is 
in conflict with routine, negligence, fashion, and 
the private interest of certain owners and traders ; 
and the prohibition of wasteful fire-places and 
furnaces, or if not this, then some other kind of 
sumptuary law is needed for the protection of the 
public weal and the due husbanding of the national 

Of all contrivances for the economy of fuel, perhaps the 
most efficient is that found in every dwelling of the Chinese 
in Manchuria, namely, the k'ang, which is a platform 2)4 feet 
high, 5 feet broad, and of a length according to the size of 
the dwelling. Inside this platform a flue is carried up and 
down the whole length four or five times ; at one end is the 
boiler where the family dinner is cooked, and in the yard is 
a chimney ten to twelve feet high, creating a draught 
through the flue. The inhabitants sit, eat, and sleep on 
the platform ; and the quantity of fuel for heating it is 
so small as to be scarce credible. See the details in 
Mr. H. E. James' excellent book of travels, The Long White 
Mountain, pp. 135 — 137. 

Thirdly, it is the duty of Government to watch 
lest the introduction of cheap illumination be abused 
to prolong the hours of work, and even for little 
children to turn the night into day. 


IV. Clothing and personal adornment form the 
next head of consumption. A suitable dress accord- 
ing to sex, age, occupation, rank, climate, and 
clothing materials, seems a want not very difficult 
to satisfy ; but strangely enough in the history of 
the world, unsuitable garments have often been 
prevalent, worn partly by choice, partly by necessity ;. 
and there is no sign of progression ; for we no 
sooner do better in one direction, than we do worse 
in another. 

It even seems as though the nations that are or seem 
to be most civilized are the worst clad. Thus the men's 
dress of Western Europe and of America judged by any 
rational standard is less suitable than that of China ; that of 
England under King Alfred was superior to that under Queen 
Victoria ; the waterproof cape used by rich and poor in the 
middle ages, and known as chape de pluie, a better garment 
than what our outdoor labourers now wear in the rain. 

So different are the circumstances of different 
civilized nations, the relations of classes and the 
position of Governments, that little can be said in 
general on the matter of dress and adornments, 
except that a humane and rational Government 
will bear in mind the following three points : first,. 
that here has been seen time out of mind and again 
and again the extreme case of misdirected con- 
sumption which we have called depraved consumption, 
and which has been the ruin of countless families : 
secondly, that simple misdirected consumption has 
conspicuous in dress since the industrial revo- 
lution began, and millions on millions oi wast< the 
ce: thirdly, that by the disorganization 

of family life, notably by the absence of tin- hou 

wife from home and by the want of training in 


household work, the proper care or repair of clothes 
has been neglected (as well as of the house-linen 
and household utensils) : such neglect being no 
trifle ; for since clothing will last twice as long if 
properly mended and cared for, the neglect of such 
care will compel a man, if he is to be clad as well 
as before, to spend on clothing nearly twice as 

Depraved consumption has often been checked by direct 
sumptuary laws forbidding extravagance. So the famous 
statute in 1361 under Edward III., which regulated the 
apparel of every class of the community, of knights with 400 
marks, knights with 200 marks, gentlemen under the estate 
of knights, merchants, yeomen, handicraftsmen, ploughmen, 
servants, as well as of their wives, and children, and which also 
as Professor Cunningham points out (Industry and Commerce, 
p. 286), bids the clothiers provide sufficient cloth at the 
various prices permitted to the different classes, so that there 
should be no excuse for infringing the law. 

In our own time the same end is better reached by in- 
direct means, as by strengthening family life and providing fit 
employment for women at home, since machinery has taken 
spinning out of their hands. But also in two ways we can 
directly attack the mischief: first, by sanitary police regu- 
lations against the sale of adulterated, unhealthy clothing or 
boots ; secondly, by making the purchase-money for any 
article of unnecessary dress — all trinkets and ornaments — to 
be irrecoverable if not paid down at the time of purchase. 
Such a rule would close one of the most oft-trodden roads to 

V. Furniture, including all household utensils 
and bedding, and the expense of washing, may be 
taken as a fifth head of consumption. The expen- 
diture on this head, like that on fuel, is closely 
connected with dwellings ; and the want among the 
poor of proper goods and chattels, and of the proper 
means of washing and drying their linen and their 
persons is one of the aspects of modern Wohnungs- 


noth. The establishment of baths and wash-houses 
in connection with every group of dwellings and 
every factory or large workshop, is to be held part 
of the duty of providing decent dwellings, and 
treated accordingly. The likelihood of misdirected 
consumption is present here also, and " cheap " 
furniture, but really wasteful and bad, eliminates 
the good ; while the sinister combination of care- 
lessness, hard water, and chemicals in washing, can 
take from us all the advantage of cheap under- 
clothing that we hoped to have got from the 
technical revolution. 

Immense sums are spent on washing by the upper classes 
in England, partly because of the great and commendable 
love of clean linen, partly because of the great use of the 
sort of clothing and bedding that require washing, partly 
because the air is charged with soot, partly because of the 
•costliness of proper washing materials (unpolluted running 
■water being scarce), partly because of the ill-organized and 
inefficient technical methods of washing, partly because of 
the faulty training and dispositions of the workpeople. In 
the middle of the century things were perhaps at their worst, 
and it was reckoned that a family of moderate means spent 
one-twelfth of its income on washing. Perhaps one-twentieth 
is now a more common figure. 

VI. Medical expenditure may be taken as a 

separate head of consumption, and to include the 

use of the services of doctors, surgeons, and nurses, 

and the use of medicines, disinfectants, surgical 

appliances, hospitals, and medical baths. 

While the rich can be mainly I take care <>i~ them' 

• medical Bervice "f tin- pooi require theii pro- 
quack (]•>< taring and bad □ and in 

Ii.ii it v is dried up "i Cannot 

>f w orkmen, 
or tl lied "ii to pi 1 .-. ide iik dical 

aid I 1 jji their employment or 



VII. General education is another head of con- 
sumption ; but not special or technical education ; 
for the cost of technical education, as already 
explained, is really a deduction to be made from 
gross revenue, not a mode of spending net revenue ; 
and thus technical education is part of the process 
of production, whereas general education falls under 
consumption or enjoyment. The last kind of edu- 
cation therefore is the only one that concerns us 
here ; but enough has already in the third chapter 
been said on it, and we need only here observe how 
greatly in many countries this head of consumption 
is fostered by the Government, central or local, 
either by exemptions, bounties, payments out of 
taxes, or else indirectly, as in China, where all 
posts of authority and honour depend on passing 
a literary competitive examination, a rule that acts 
as the most efficient of sumptuary laws. 

VIII. Religious worship among Christian peoples, 
as a head of consumption, is often considerable, 
witness the beautiful buildings and their adorn- 
ments, and the costly vestments and sacred vessels, 
that have again and again in the history of the 
Church been swept away by the spoilers, and 
again with pious industry renewed. Moreover, 
the reverent treatment of the dead, according to 
Christian traditions, requires justly a considerable 

The Government, more especially outside the Christian 
pale, may rightly restrain by sumptuary laws excessive 
expenditure on funerals. Such were among the laws of 
Solon at Athens and of the XII. Tables at Rome; and in 
our own day, some restraint on the splendour of funeral 


monuments in China might be a great benefit to many 
families in that great empire. Observe, this is distinct from 
the possible duty of a Government, in the interest of public 
health or security, to forbid certain modes of burial ; as 
perhaps in England on the ground of health to forbid metal 
coffins, brick graves, and vaults ; and on the ground of pre- 
serving judicial evidence, to forbid cremation. 

IX. Recreation, the ninth head of consumption, 
requires to be treated more in detail, because of 
its variety, its effects, and the many occasions it 
offers for legislation to foster or restrain it, and 
for taxation. In truth, although the amount and 
character of recreation is an indication and effect 
of the state of a nation, it is also in its turn a cause 
of that state ; moreover, for nations as for individuals 
there can be too much or too little recreation, the 
too much or the too little varying indeed with 
circumstances ; again, unless innocent recreations 
are provided for them, the great multitude of men 
will indulge in bad ones ; and even where there is 
a choice of both, the principle of depraved con- 
sumption will too often come into operation, and 
bad recreations will take the place of good. All 
this being so, a vast responsibility weighs on all 
those in any sort of authority to avert a calami- 
tous deficiency of some kinds of recreation and a 
calamitous excess of others. And the technical 
lution has made this responsibility all the 
1 use the strained, continuous, noisy, 
1 dusty work of modern factories and work- 
shops mail tion more n< ry than it was 
in the easy-going, slack, and quiet methods of the 

t, when work and play in many industry 

not sharply separated a now; in r, the 


growth of the towns has vastly increased the craving 
and the opportunity for evil recreations. 

Let us make a rough catalogue of recreations, 
and distinguish them by capital letters. 

(A) Games and sports of all kinds, excluding 
field sports, but including children's games- and 
athletic sports. 

Of such recreations there is the greatest need, 
both physical and moral, the playground being little 
less important than the school. The happy pre- 
valence of outdoor sports among the middle and 
upper classes in England contrasts with the miser- 
able deficiency of such sports among the poor ; for 
whom proper playgrounds are wanting, even in 
many country villages, and above all in the towns. 

(B) Field sports, that is, the pursuit of any kind 
of wild creature, from a village rat hunt to a royal 
shooting party. 

These sports have been disfigured by two main 
abuses : first, oppressive game laws punishing poach- 
ing offences quite in disproportion to their guilt and 
before courts not fairly constituted ; secondly, injury 
to agriculture and no proper compensation to the 
sufferers. Sometimes even there may be artificial 
sterilization of the land and depopulation of whole 
regions for the sake of game. But this is an 
exceptional abuse, a mere trifle compared with the 
other form of withholding resources described at 
the end of the eighth chapter, and can easily be 
checked ; while those other two abuses are by no 
means a necessary accompaniment of field sports ; 
which thus reformed are an admirable influence for 


good, withdrawing from the evil or unhealthy occu- 
pations of the town, fostering residence in the 
country, and bringing together rich and poor by 
common occupation and common interests ; while 
the need even in densely-populated countries of 
preserving abundance of woods and flowing waters, 
affords perpetual shelter for objects of the chase. 

(C) Excursions of all kinds, unless like riding, 
cycling, or yachting, they can be called athletic 
sports. Pleasure-trips by rail or steamer and taking 
drives, form the two principal kinds of recreation 
under this head, and the aggregate sum spent on 
them is very great. 

To be driven in a well-built carriage drawn by fine horses 
along a fashionable promenade, is one of the principal modes 
by which in all the great cities of Europe, and both Americas, 
rich people display their riches; not a worse method perhaps 
than that of other and ancient civilizations, but not a better. 
The recreation of travelling in its modern shape is new in its 
importance. It has become possible because of the revo- 
lution in the means of travelling ; it has become a require- 
ment because of the hurry of business, the concentration in 
towns and the lack of recreation-grounds ; and is a necessity 
of our case. Only, perhaps, it were well to alter our case 
and to lessen that necessity. 

(D) Artistic recreations, pleasure gardens, picture 
galleries, collections of statues : on which, like on 
Other things, there can be excessive expenditure, 
but seldom national mischief; and even such extra - 

as that seen in the building of Versailles, 
or of the three palaces of Louis II. of Bavaria, may 

permanent source of pleasure to many 

tions, and even ;i source of national wealth by 
attracting foreign visit' 


(E) Literary recreations, from the ennobling 
-study of the master-pieces of literature to the read- 
ing of a halfpenny newspaper. 

The invention, not of printing, but of machine-printing, 
combined with the improvements in transport have allowed 
the taste for newspapers to be indulged almost ad lib'itum ; 
and indeed our Government encourages the taste by a bounty 
on newspapers in the shape of a special low rate for their 
transmission through the post. Whether the recreation of 
reading even the innocent matter in newspapers, is not 
rather to be kept within bounds by a restrictive sumptuary 
law than fostered by a bounty, is worth considering ; but 
certainly the publication of all the details of murder, suicide, 
and adultery should be absolutely forbidden, and all obscene 
and blasphemous literature be suppressed with as much 
severity as the manners of the country will endure. 

(F) Festive meetings of all kinds, notably 
banquets and dances, of which the kinds are so 
many and so various that little can be said in 
general on their expense or character. 

Thus, dancing varies from being an admirable and in- 
expensive recreation among many peasantries on both sides 
of the Atlantic, to being a source of extravagance and im- 
morality in the north of England, and ten times worse in 
France. Banqueting and festivities have often been checked, 
both wisely and unwisely by sumptuary laws, like that of 
Edward III. de cibariis utendis in 1336. A recent law, probably 
excellent, has limited the expenses of marriage festivities in 
parts of India. At home, the reasonable check put by law 
to the consumption of certain foods out of season might with 
advantage to national health and wealth be extended to some 
kinds of fish ; and a heavy tax should be laid on the practice 
of killing calves under two or three months old. 

(G) Music, though capable of being abused, is 
less likely to be than most recreations; great results 
can be obtained by its means at little cost ; and 
perhaps the spread of good musical training and 
entertainments among the factory and urban work- 


people is one of the first among the minor methods 
of social reform. 

(H) Shows and spectacles of all kinds, of which 
the most conspicuous have been the struggles of 
men and animals in the circus, and the drama in 
the theatre. 

The last may be said to be the characteristic 
recreation of man, the highest flights of his genius 
and the lowest depths of his degradation being re- 
corded in the history of the theatre : alike the plays 
of ^Eschylus and the foul swamp of the later stage 
of Greece and Rome ; alike the Christian drama 
and the modern French play. Observe how common 
among civilized rural populations has been the 
religious, mythological or historical play. To this 
day, the farmers in China during the slack season 
of agriculture will charter a troupe of actors, and 
witness an heroic play in the village market-place. 

Obviously any Government worthy of the name 
will check the exhibition of immorality whether on 
the stage or elsewhere; and will remember that the 
principle of depraved consumption applies with 
great force to stage plays, and that the better sort, 
unless there is watchful vigilance by authorities, will 
likely enough be eliminated by the worse sort. 

(J) The use of innocent narcotics forms another 

1 in the catalogue of recreations. Such is the; 
use of betel-nut among Burmese and Malays, of 

a in parts of South America, and above all of 
tobacco, which 1 the civilized world 

during the last 300 forms one <>f the chief 

rces of publi< revenue In many states, and of 


which the annual consumption a head in the chief 
countries of Europe and America ranges from over 
one to over four pounds' weight. 

Putting aside the preventible abuse of smoking 
by young lads, especially in America, we may 
welcome tobacco as a true friend to the poorer 
classes, a solace amid their hardships, and a bond 
of union by no means to be despised between them 
and the richer classes. How far the heavy taxation 
on the poor man's pipe in so many countries is to 
be justified, we must wait till the Fourth Book to 

(K) Last in order on our list, but unhappily not 
least in importance, comes recreation that is wholly 
vicious, licentiousness, gambling, and intoxication. 
Regarding the first, although a Christian Govern- 
ment has several direct means of action, notably 
the repression of foul literature and plays, its main 
function is indirect, by fostering Christian family 
life and the influence of religion. Gambling, when 
a widespread vice, is more easily to be checked by 
police regulations, since it is very dependent on 
the easiness of the opportunity for it ; and thus 
assuming reasonable laws on property, and the 
refusal of all courts to enforce gambling debts, the 
authorities can repress, not indeed all recreations 
which are abused for gambling, for to do this, if it 
could be done, would be to cause ten times the 
mischief it prevented, but all making profit out of 
the encouragement of gambling. 

The difficulty is that gambling, using the word strictly in 
a bad sense, is merely the excess of a perfectly lawful practice. 


To stake property on an uncertain event may be an admir- 
able restorative excitement after the cares and labours of 
the day. But if so much is staked that a man's creditors or 
family would feel the loss of it, or if he or others are drawn 
by moderate stakes into the temptation of excessive stakes, 
then this is gambling. But obviously this is a matter for 
private consciences, not for the public constable. It is other- 
wise indeed where excess is so widespread and habitual that 
there can be a reasonable legal presumption of its presence. 
So notably in two cases in England, stock-exchange specu- 
lations (which we shall examine in the next Book) and betting 
on horse races. The crowd of dishonest and violent men 
who swarm on every racecourse, the countless betting agencies 
throughout the land, the many newspapers openly devoted 
to the promotion of gambling, the enticing and entrapping of 
innumerable victims, notably of so many lads among the 
working classes, all this partly in defiance, partly under the 
shelter of the law, is an unpleasant feature of our civilization. 

Intoxication by the abuse of strong drinks, or 
of narcotics like bang and opium, has been recorded 
among men from the most ancient times, and among 
societies the most different in their surroundings 
and degree of civilization. Some nations at certain 
times have been almost free from this evil, like 
Italy in the eighteenth century. Oftener it has 
been one of the minor evils of society that call for 
little, if any, interposition of Government. Some- 
times it has become a crying evil and an abundant 
source of misery and crime, as in many countries 
of our own time, our own country among them. 

In the middl< land, the greal efforl of the 

rnment was to secure a supply of well-made, un- 
adulterated liquor in honest measures at moderate price. 
if the liquor was left to be kepi in check by the 
ecclr 1 authi ■ Oil their overthrow began tin- new 

principle of punishing drunkards and granting licen 

of intoxicating drinks. In tl atb century 

which l.-i ted till the nini teenth 
•mi ( i.i e ;■' lea t, drunkem 
railty, but rather a virtue. But a worse evil 1 the 


spread among the poorer classes of a new intoxicant, not the 
ancient ale or mead or cider or wine, but spirits. The new 
Government of 1688, favouring the distillers, allowed the 
depraved taste to spread, and gin-drinking became so terrible 
an evil that immense efforts were made by the Government 
of George II., at last with much success, to check it. In the 
nineteenth century, the amount of drunkenness in the United 
Kingdom has varied, but never, I think, sunk below the- level 
of being a national evil of the first magnitude ; the happy 
reform among the richer classes has been balanced by the 
immense spread of the adulteration of drink ; and greater 
sobriety of some bodies of men, like the sailors, soldiers, and 
perhaps commercial travellers, has been balanced by the 
growth of drunkenness among women. And the scandal 
continues from one decade to another, that while the victims 
of drunkenness and their families are punished often with the 
sharpest sufferings, those who excite their morbid craving 
and make profit by it, live in honour and prosperity. 

Although each country must attend to its own 
peculiarities, the following recommendations seem 
appropriate under the circumstances of much of 
Western Europe and North America. First, touch- 
ing the drink sold, to make an end of the all- 
prevalent and audacious adulteration of the wine, 
beer, ?.nd spirits that are sold to the poorer classes; 
to prohibit utterly the sale of all spirits that have 
not been kept many months in bond ; to foster by 
differential taxation the consumption of light drinks, 
such as mild ale, cider, and light wines, at the 
expense of spirits ; and to benefit alike domestic 
industry, home life, and national temperance by 
reducing almost to a vanishing point all taxation 
on brewing at home for home consumption. 
Secondly, touching the method of sale, to follow 
what in America is called the high licence system, 
that is, to allow those only to sell intoxicating 
drinks, who being themselves men of good character 


and substance, and independent of brewers and 
distillers, have paid a large sum for the privilege, 
and thus become active co-operators with the police 
against any infraction of their monopoly ; and the 
sellers being thus reduced to a number that can be 
duly inspected and to a character that can be duly 
controlled, to be bound by certain regulations on 
the bona fide supply of food and non-intoxicating 
as well as intoxicating drinks, by regulations also 
on the price of their goods, on the hours of closing, 
on the withholding drink from young people and 
from notified drunkards, on the preservation of 
decency and order within their premises. 

Pitfalls. (1) To say that the national drink bill of the 
United Kingdom in 1890 was nearly 140 million pounds 
sterling, or about a twelfth of every one's income. For of 
this sum about a quarter was in the shape of a tax to Govern- 
ment on the liquor or its sale, and thus was payment, not for 
drink, but for law and order. And of the remaining three- 
fourths, probably half was either genuine refreshment of 
mind and body, and to be put down under the head of food, 
or was innocent recreation, making glad the heart of man. 
The remainder indeed, some 50 million pounds a year wasted 
in depraved consumption, with incalculable misery as the con- 
sequence, and most of it preventible, is enough to account 
for and to excuse the exaggeration. 

(2) To attribute to drink the greater part of penury, immo- 
rality and crime, and in consequence to think " temperance," 
or " total abstinence," the one thing needful for social reform. 
In reality those evils can coexist with almost universal 
sobriety, for example, among the Mahometans of Northern 
Africa and the Turkish Empire with their great sobriety and 
abominable immorality. Again, t: lis may be as mueli 

the < 1 the effects of drunkenness ; for pinching qui 

or reckli .ding, or deeds oi shame, may nol follow 

in bottle, but be followed by it as a Bolace. It I 

mistake and to < it on the same grounds 

»us one ; and both have a fui t her 1 
I the follow in ' delu ion. 
1 y that men cannot \>i- m by A< t of 


Parliament, and that the sale of drink should not be 
restrained. But then also neither can they be made moral 
or honest ; and so let the law leave absolute freedom to every 
indecent exhibition or publication, permit every fraud and 
enforce no contract. There is indeed a ground for this 
mistake in the frequent failure of ill-judged temperance 
legislation. But the moral of failures is to do better, not 
to cease from doing; and there are examples to instruct and 
encourage us, notably during the last quarter of a century 
in Sweden, the United States, and elsewhere. 

The foregoing mistake is but a form of one of the two 
opposite errors on the matter of sumptuary laws, errors to be 
put as the fourth and fifth in the present series, and into one 
or other of which so many writers have fallen and do daily 

(4) To say with Adam Smith that it is the highest imper- 
tinence and presumption in kings and ministers to pretend 
to watch over the economy of private people and to restrain 
their expense either by sumptuary laws or by prohibiting the 
importation of foreign luxuries. For this argument assumes 
a general wisdom and frugality that is imaginary, and ignores 
the real fact of depraved and misdirected consumption ; as 
though time out of mind men had not been deluded with 
" thynges of complacence," with " chaffare that is wastable," 
and been too eager to buy 

Apes and japes and marmasettes taylede, 
Trifles, trifles that litelle have availede. 

(Cunningham, Industry and Commerce, p. 382.) 

The grounds of the error of Adam Smith were somewhat 
similar to those of his previous error on famines, noticed in 
the earlier part of this chapter, the reaction against over- 
intervention of Government, the worship of laissez-faire, the 
tacit assumption that all men were like a sober canny Scotch- 
man of the middle class. 

(5) To look on the State, like certain German economists, 
as organized reason, to give it the attributes of a wise father 
and holy pontiff, to praise the puritanical regulations of the 
sixteenth, seventeenth, and eighteenth centuries, and thus 
failing to give us any criterion of the limits of interposition, 
to hand over the details of private life to be ordered accord- 
ing to the good pleasure of Government ; when in reality 
only then can sumptuary laws be justified when rights are 
violated (as by solicitations to drunkenness, gambling, or 
licentiousness), or when they can be made to promote some 
great and obvious public good, or abate some great and 
obvious public evil. 


X. The last head of consumption may be given 
the general title of justice, and includes the enjoy- 
ment of peace and security, and the means of the 
orderly settlement of all disputes by process of law. 

Observe that this head of consumption is by no means 
equivalent to the actual expenses of Government, which 
cover only part of the same ground. Thus a portion of the 
rates and taxes which we pay in England to the central and 
local authorities, are not payments for the enjoyment of 
justice, but for educating and supporting other people, or 
for the use of roads, harbours, water-works, light, or drainage. 
On the other hand, many payments that are really for the 
sake of peace and justice do not take the form of payments 
to Government, for example, many legal expenses and all 
private precautions against violence and thefts : bolts and 
bars, revolvers and watch-dogs, watchmen and attendants. 
Hence it is often a very complicated matter to know on what 
we are really spending our money, or what is and what is 
not expenditure on justice, and what we ought and ought 
not to deduct from our gross revenue before we reckon up 
our net revenue. But to determine the functions and expense 
of a humane and rational Government is fortunately not a 
very complicated matter. 

Having now faced the main problems of pro- 
duction and consumption, let us turn to those of 


Book II. 



In this Book we have to inquire why people buy and 
sell instead of each family providing for itself; how 
the price of merchandize is determined ; what is the 
nature and use of money, and of the various con- 
trivances for saving the use of money, and for 
postponing payments. 

It should be observed at the outset that in any 
strict definition of exchange the existence of private 
property is supposed. For exchange is not the mere 
moving about of goods, but the transfer of ownership 
from one person to another. It is true that com- 
munistic groups might act as persons, and trade \\ ith 
another; but our business Is not with a fancy 
world ; and thus we take tilings as we find them, 
and perceiving that the earth is divided ami 
nations, and that each national heritage is divi 



among private persons, we observe how trade (that 
is, habitual as distinct from occasional exchange) 
enables our land and our fatherland to be turned to 
the best account. 

We may reckon five main reasons for trade : 

(1) The personal advantages springing from 
division of labour, such as increased dexterity, 
utilization of varieties of capacity, saving in cost 
of learning, and the rest, as explained in the fourth 
chapter of the previous Book. Hence in one village 
not every man is a smith, a potter, a cobbler, a 
thatcher, a carter, a storekeeper, but each keeps 
to his own business and gets what he needs by 
exchange. This reason, however, only accounts for 
petty local trade. To account for trade between 
distant places we need another reason, which is the 
following : 

(2) The physical diversity of the world whereby 
instead of everything being produceable everywhere, 
much can be produced not at all in some places and 
only with great disadvantage in others. It is practi- 
cally impossible to produce coal in Holland, wine 
in Scotland, mahogany in England, petroleum in 
Ireland, slate in Middlesex, or cotton in Lancashire; 
yet all these countries or counties require great 
quantities of these goods. Often a thing is wanted 
precisely in the kind of place where it cannot be 
produced, as ice in the tropics, the furs of wild 
animals in great towns, or salt for men and cattle 
far from the sea and the salt-mines. Sometimes, 
again, though quite possible to produce certain 
goods at home, they are imported from abroad 


because in this way they are or the)' seem to be 
got at least cost. Thus immense quantities of wheat 
are annually imported into England, not because in 
England the quantity required could not be grown, 
but because the cost of obtaining it from Russia, 
India, or America is less or seems less. 

(3) A third reason for trade is the advantage that 
comes from that concentration of a manufacture 
and of allied manufacturers in one place, which is 
called the localization of industry, and which was 
explained in the earlier part of the sixth chapter of 
the previous Book. 

(4) A fourth reason for trade is the advantage 
of producing on a large scale, as explained in the 
second part of that same chapter. 

(5) A fifth reason is the concentration of dwell- 
ings partly due to industrial, partly to non-industrial 
causes. This also in the middle of same chapter 
has been explained ; and the result is a growth of 
towns instead of a nation being all scattered over 
its territory in homesteads and hamlets. Now it 
follows that as the inhabitants of towns must be 
supplied from a distance, the existence of towns 
implies considerable and habitual exchange. Hence 
trade and towns go together, and if in any country 
there is but little exchange, the towns in it can only 
be scanty and small. 

In judging the advantage of any person, place, 

or region for producing some particular merchandize, 

n<>\ the absolute but the comparative cost which 

r may be able to maki both boots 

and coat ttei than Paul, but if he is only ten. per 


cent, better in making boots and fifty per cent, 
in making coats, it will be to their mutual advantage 
that he makes coats only. A physician, though a 
most skilful compounder, will not himself mix his 
drugs, but lets another do it, though with twice the 
time and trouble, because the physician's time can 
be employed so much more profitably. Much rich 
land near towns would, acre for acre, be much more 
productive for raising live stock or growing timber 
than the remote and less fertile districts whence 
they are drawn ; but as the relative advantage of 
the rich land so situated is still greater for market- 
gardens or dairy farms, it is used for these purposes. 
At one time the landowners in Barbados got almost 
all the provisions for their negroes from the United 
States, though they could have grown them cheaper 
at home, because it was still more cheap to grow 
sugar, and exchange sugar for provisions. 

These cases are illustrations of the principle that 
can be called the principle of comparative advantage. 

This is sometimes called the law of comparative cost, and 
so far so good ; but then it is sometimes also treated as 
though it applied only to international trade ; which is quite 
a mistake. 

As the mutual benefit coming from trade depends 
on the difference of personal or local advantage 
minus the costs of carriage and transfer, two conse- 
quences follow. First, the greater the diversity the 
greater the gain, and vice versa. So between places 
and peoples much alike in habits and physical 
circumstances trade is not likely to be so active 
as between town and country, highlands and low- 


lands, mineral and urban regions, hot and cold 
climates, between all of which nature incites to 
communication. Secondly, the gain from exchange 
having to be docked by the cost of carriage and of 
transfer, there is a constant inducement to lessen 
these costs ; and conversely, all improvements in 
communications render more trade possible. Hence 
the fabulous growth of trade in the nineteenth 
century has been concomitant with a fabulous im- 
provement in the means of transport and also in 
the means of information. For remember, besides 
the physical carriage there must be the means of 
finding the purchaser, and this has been made ten 
times easier by the telegraph, goods being able now 
to be sent, no longer at a venture, but to order, 
from one end of the globe to the other. 

But let us be under no illusion. For though 
trade can be regarded as being in itself a provi- 
dential instrument for the spread of a universal 
religion and for the breaking down of national 
prejudices and hatreds, still, like all else in the sad 
history of the world, it has been put to a thousand 
ill uses and has caused incalculable suffering. Half 
the wars of nations have been trade wars, and 
countless exchanges have been the occasion of 
fraud or extortion, resulting in a material injury 
to the one contracting party and a moral injury 
to the other. Only the remedy is not to stop trade, 
but to stop the abuse of trade. 

/'it/all. To look on trade n"t ;i , ;i means but as as cud, 
and thus to j f the prosperity of a < ountry by its imports 

and • In truth, it "home-made" goods in botl 

of th< .11 other H ;•'• es Uy procured as bought 


or foreign goods, they are better than these, because the costs 
are saved of transport from place to place and transfer from 
hand to hand, and because the risks are lessened of misdirected 
production and misdirected consumption. No doubt the in- 
crease of a country's exports and imports is often a symptom 
of increase of prosperity ; but it may happen that precisely 
a diminution of foreign trade may be a mark of industrial 
improvement, as Professor Sidgwick has pointed out, and not 
of retrogression, and may be a preliminary to social reform. 

We now come to a question of great delicacy and 
complexity, namely, the terms on which exchanges 
are settled, why so much of one thing is exchanged 
for so much of another, why, to take a homely 
example, has a quarter of wheat in the wholesale 
trade in London been at certain times exchangeable 
for five pairs of stout boots ? Or to put the question 
in another form, why did the wheat sell at fifty 
shillings the quarter and the boots at ten shillings 
the pair ? I say, in another form, because the 
essence of exchange is the same whether money 
is used or not. Hence there is no need to assume 
a state of barter which cannot exist where there is 
any considerable trade, and which in fact among 
civilized nations does not exist. And it is much 
simpler, instead of comparing various kinds of 
goods directly with each other, to compare them 
with some common good that is taken as a measure, 
in other words to compare their prices. 

Now all prices are either market prices or not- 
Let us examine market prices first ; for if we under- 
stand these, we shall easily understand all others. 



The proper meaning of a market in economic science 
is an assemblage of many buyers and many sellers, 
all of them being more or less technical experts in 
the quality of the goods for sale, and more or less 
acquainted with external circumstances likely to 
affect the price ; and where, moreover, all bargains 
actually made are openly known. Of this character 
are the great wholesale markets like that of corn 
in Mark Lane, of securities in the Stock Exchange, 
of raw cotton at Liverpool, of wool at Bradford, of 
sugar at Glasgow, of cotton-cloth at Manchester, 
of iron, brass, and copper goods at Birmingham ; 
of this character also were the great annual fairs 
that used to be held in England at Winchester and 
Stourbridge, and such as is still held at Novgorod, 
in Russia; of this character also are the periodica] 
sales in the market-towns of Great Britain and 

l : aders need not 1"; literally assembled to make a market ; 
may I": scattered over a whole Large town or ov< 

■ . ; t . tinted out, it' by I be mean i A 

telephones, telegraphs, and published price I 

ommunication. And the more pi u table 
the merchandise arid efficient the means of communication, 
m be t: a mai la I , 


It is hardly necessary to warn the student that " market " 
is often used in another sense to mean a mass of buyers, 
however unconnected, a mere aggregate of customers. Such is 
the word market in Adam Smith's formula, that the division 
of labour is limited by the extent of the market ; or when we 
say that Africa is a new market for British goods. Whereas 
market in the strict sense implies necessarily a certain con- 
nection between the buyers ; that they are not an unorganized 
aggregate but have knowledge of each other's dealings. 

The great feature of such assemblages is that 
then and there for particular goods there is only 
one price, for example, fifty shillings for a fat sheep 
at Reading market on a particular day. You can 
sell one for no more, and get one for no less. This 
can be expressed by the formula that there cannot 
be two prices in the same market ; and this price 
is the market price. 

How is this price reached ? The answer is 
another formula, that market price depends directly 
on demand and supply, indirectly on private costs 
of production and value in private use. All these 
Jour factors determining market price require expla- 

Demand and supply, in the simple use of the 
terms, only express the action of the two parties 
preliminary to every exchange, and are correlative 
terms, demand being the expression of a wish for 
some good by offering another good for it, and 
supply being the offer of some good as the expression 
of a wish for some other. 

Where money or substitutes for money are used, 
and thus practically in all commercial dealings, the 
word supply is applied to the action of those who 
ofer other goods, and the word demand to the 


action of those who offer money or its substitutes. 
Moreover, demand and supply as operating in 
markets are not a single action on either side, but 
the sum of the action of a number of persons ex- 
pressing wishes and offering goods. 

The word supply is misleading. Offer would be the right 
one, and would prevent us confusing the offer for sale with 
the stock in existence. So Professor Walker has to emphasize 
rightly enough the difference between stock and supply, the 
supply, namely the offer for sale, being often less, some- 
times through speculation more, than the stock. But in 
French or German there would be no necessity for this 
explanation, as their words Voffre and das Angebot mean in 
ordinary discourse not supply but offer. 

The working of demand and supply, resulting in 
a market price being fixed, has been well described 
somewhat as follows by Cairnes, Thornton, and 
Professor Marshall. 

Buyers and sellers enter the market with opinions 
derived from their information on the stock of the 
commodity in hand or soon available, and on the 
quantity those will require who finally use or con- 
sume it. These opinions meet and modify each 
other in the market ; but as all the dealers are 
more or less experts, their opinions are not likely 
to be very divergent. And buyers and sellers also 
enter the market with different private necessities, 
some anxious to sell at almost any price, ready to 
what they can get, others quite able and ready 
to wait to sell till another day ; and buyers too, 
som< <;i;;< r to buy, knowing a profitable opening 
for the employment of their purcha \es, others in- 
.:. And tlwsc various necessities and indif- 

vill mutually influence tli' action of the 


dealers, and the more so the greater the quantity 
any very eager buyer is demanding or eager seller 
is offering. A perfect knowledge of the dispositions 
of all the dealers would enable any one to fix a 
particular price at which the maximum quantity of 
goods could be exchanged, below which less would 
be sold, above which less would be bought ; and 
this can be called the proper market price (Professor 
Marshall's true equilibrium price). This price is 
habitually nearly the same as the actual market 
price, but not quite the same, only an approxi- 
mation ; because even traders make mistaken 
estimates, and even in wholesale trades shrewd 
bargainers can somewhat influence price by their 
shrewdness. The difference between the proper 
and the actual price may be set down to what 
Adam Smith calls the higgling of the market, which 
is the less the more equal are the two sides in 
numbers, intelligence, and indifference, and the 
greater the total intelligence and the total numbers 
of the frequenters of the market. 

The action of buyers and sellers in a market, 
striving to make the best bargain, is a notable 
example of free competition. The word compe- 
tition by itself is to be taken as the peaceable 
striving of several persons for some good, which 
only one or some of them can fully attain. If 
the competitors in the main are fairly matched, 
and the ignorant and weak are not pitted against 
the skilful and strong, nor a scattered multitude 
against an organized body, the competition is free ; 
if otherwise, it is one-sided. Now the dealers in *a 


market, from the very nature of a market, compete 
freely ; and though all cannot attain what they wish, 
none can complain of a market price as extortionate : 
it would be a contradiction in terms. 

But the last word has not been said about 
market price ; we have only seen the immediate, 
not the remote grounds for it ; and have yet to 
answer the questions why the buyers and sellers 
come with those dispositions of mind to market, 
and what will be the effect of this present market 
price on those of the future : we must look at costs 
and uses. 

The meaning of cost, as already explained {supra, 
p. 8), is personal sacrifice, the surrender of some 
good by some person. Now the mental dispositions 
of the seller of an article in the market are influ- 
enced by the sacrifices he has made in its regard. 

He may indeed, as the phrase is, sell at a loss ; that is, the 
market price may not indemnify him for his costs. This does 
not mean that it would be better for him not to sell : he 
knows he would lose still more by not selling, as the price, 
though low, is of more value to him than the use he could 
himself make of the article. But he cannot go on bringing 
the article to market at a loss, and he must leave off unless 
cither the price becomes more or his costs less. 

Now what are these sacrifices or costs ? Perhaps 
they can be put as the simplest method of arrange- 
ment under eight heads. 

(i) The wages in any shape of any workmen, 
from the highest to the lowest, that he may employ 
in the production of tin; article. 

(2) Tin; rents in any shape (including interest) 
for any Sp< I property that he ma)' use in 

production of the article. 


(3) The taxes, whether levied by the local or the 
central Government, that fall on the production of 
the article. 

(4) Replacement of all raw material used up or 
of machinery worn out, and repair of all ordinary 

(5) All purchases of goods and payments for 
bringing to market — costs of carnage, warehousing, 
advertising, that cannot be included under the four 
previous heads. 

(6) Insurance against fire, robbery, fraud, failure 
of crops, whether the insurance take the shape of 
a reserve fund to meet bad debts, or of payments 
to an insurance company, or of physical precautions 
like fire-proof walls. 

(7) Technical education of a successor in the 
business, or replacement of what has been spent on 
his own technical education. 

(8) His own toil and trouble. 

The sum-total of all these costs can be called 
the private costs of production. And if production is 
to be continued, the market price must be enough 
to indemnify him for those costs and to enable and 
induce him to continue at his post. 

Some writers have therefore suggested the use of the 
phrase, cost of reproduction, instead of cost of production. 
But there is little to be gained by the change ; and, in 
fact, since not merely the anticipated future, but also the 
remembered past, exert influence on the mind of producers 
and dealers, it is better to use a word that will include the 
past as well as the future. 

The different elements or component parts of private 
costs of production may be arranged in different ways from 
that given above, and it is of little consequence as long as 
all are included and their variations and complexity is 


recognized. For observe how they vary immensely according 
to industry, time, place, and individual producers or dealers, 
no two men being in disposition and surroundings perfectly 
alike, and only a portion of the costs being capable of 
accurate measurement. Hence, for example, to discover 
what was the private cost of production of a pair of similar 
kid-boots to each of six boot manufacturers at Northampton, 
would be a task of great length and difficulty. 

Observe also the following complications. First, when we 
say that a man's private costs of production must be defrayed 
if he is to continue at his business, we do not mean that all 
his sales must be at a price adequate for that purpose, but 
only the sum-total of his sales over a certain period. This 
period may be weeks, months, even years, according to 
circumstances ; and the larger the business, the more 
specialized the capital, the longer will it be endurable to sell 
at a loss. Secondly, in like manner where one person sells a 
variety of goods, the price of the whole must indeed defray 
(in due time) the costs of the whole, but not the price of 
each article the costs of each article. It is the same to the 
seller whether the articles A and B, each costing him 10s., 
both sell for 15s., or whether A sell for 10s. and B for 20s. 
True, if these prices continue, he will seek to reduce his 
production of A and increase his production of B. But this 
is sometimes impossible ; for many goods are technically 
connected as joint products, like sheep and wool, honey and 
wax, hens and eggs, wheat and straw, coal-gas and coke, 
and different crops where for good cultivation a rotation of 
crops, such as of corn and roots, is required. So year after 
year goods may be brought to market and sold in a sense 
under cost price ; but only because they are inseparable 
adjuncts of a profitable whole. This can happen even where 
products are not joint ; for some goods are sold unduly cheap 
as a means of advertising others. Again, this can happen 
where for want of accurate book-keeping the different costs 
of different items are not accurately known, and a perpetual 
deficit in one department be met by a perpetual surplus in 
anoth' 1. Thirdly, the greater the number of goods sold, the 
smaller the profits on each sale necessary for the seller to 
gel hi-, living. Fourthly, if the seller draw revenue from 

other s< the necessary revenue from his sales can pro 

tantn be smaller. 

Already at the very beginning of the First l>ook 
nave seen the necessity of making a careful 
inction between the public or national and the 


private point of view : and this necessity meets us 
again. The costs we have been considering and 
which are chiefly influential on prices, are the 
private costs of production. To be costs at all they 
must indeed imply sacrifice ; but then this sacrifice 
may be the advantage of others, the loss may be 
another's gain. Thus I may pay higher interest 
for what I borrow for my works, higher wages to 
my men, a higher price for my fuel ; my private 
costs of production in consequence are higher, to 
my loss indeed but to the gain of my creditors, of 
my workmen, and of the colliery-owner. Quite 
different is the national or public cost of production, 
namely, the cost which is incurred by the nation 
considered as a whole and with a personality of its 
own. Here neither wages, nor rents, nor taxes 
are cost ; neither purchases of goods, except from 
foreigners ; much of insurance also disappears, and 
the whole cost can be reduced to two elements ; on 
the one hand the toil and trouble, corporal or 
mental, of all engaged in the process of production; 
and on the other hand, the amount of property used 
or used up in that same process. 

These two kinds of cost must be constantly kept 
distinct. The private costs of production can often 
be measured with some approach to accuracy, 
being in great part sacrifice of exchangeable goods 
of which the price is known ; whereas the public 
costs of production escape all accurate measure- 
ment, belong to a higher region than that of 
ordinary book-keeping, and are ever varying with 
the changes in the physical condition of the country 


and in the mental and moral condition of the 


The distinction between public and private costs of pro- 
duction is much the same as that drawn by Professor Marshall 
between real cost of production on the one side, and on the 
other side money cost of production or expenses of production. 
The different heads of private cost of production he would 
call factors of production ; and the price adequate to defray 
all these costs, including those of bringing the goods to market 
(trading expenses), he calls the supply price. But the terms 
we have used in the text appear to express the necessary 
distinctions with greater clearness and emphasis. 

Now of these two kinds of cost, the one which 
is of primary importance for market prices is not 
public but private cost. If manufacturers give more 
wages for the same work and more interest for the 
same loans, the private cost of what they produce 
is increased, and ceteris paribus they cannot afford 
to sell so cheap as before ; but there is no corres- 
ponding increase of the public cost. And if they 
give less wages and less interest, their private costs 
are lessened and they can afford to sell cheaper ; 
but there is no corresponding diminution of the 
public cost. 

Thus goods may be sold very cheap as being produced 
by the labour of driven slaves, and by the private costs of 
production under the head of wages being in consequence 
low; but the national cost of those goods is pre- 
sumably very high because of the miserable toil in their 
production. Again, goods may be sold very cheap in a 
market because the dealers may have made one-sided 
bargains with the poor country people who are the principle 
produce] : to such case the dealers' private costs of pro- 
duction low, but not the national cost. Sometimes 

d both are low as the markel prici I chiefly 

time at the leisure and < om ei 
■ ; for the toil and trouble o\ such production is very 
II. In all th( Qothing anomalous, 

and it is a m to treat them like Mill as anomalous 1 


of value. The value and price of such goods can be as much 
and as little reduced to a law or formula as any other value 
or price. 

Nevertheless, the public and private cost of production 
though distinct are closely connected, and there can hardly 
be any serious alteration in the one without the other being 
affected. Thus, if the wages of factory workers in the cotton 
trade are at a reasonable level, a great reduction or a great 
rise of wages is not simply a shifting of the private costs of 
production ; for the public costs will certainly be greater in 
the first case and probably in the second. 

Pitfall. To fail to distinguish properly the public and 
private point of view, and thus either to look on cost exclu- 
sively as public (like Cairnes), or exclusively as private (like 
Thornton), or to mix the two in confusion (like Mill). These 
mistakes are not surprising, owing to the complication of the 
matter, the various uses of the terms cost and expenses, the 
proverbial difficulty of counting the cost, and the fact that 
so much of what is lost to one man is gained by another. 

Having looked at the first of the two indirect 
causes of market price, namely, private costs of 
production, let us now look at the second, namely, 
value in private use. For as on the one side the 
offerers, sellers, or those who bring or send to 
market, are influenced, as we have just seen, by 
their private costs of production ; so also on the 
other hand, the demanders, buyers, or those who 
carry away from market, are influenced by their 
estimate of the utility of the goods for their own 
particular purposes, that is to say, by the value of 
these goods to them in private use. 

This no doubt is strictly true only of the final purchaser ; 
whereas for a dealer who buys at a market to sell again, the 
point is the value in exchange, and his estimate of the article 
is based on what he can get for it. But precisely what he 
can get for it will be dependent on its value in private use to 
the final purchaser ; and thus the essence of the transaction 
at the market is not affected by the purchaser not being the 
person who uses the goods purchased. 


Now value in private use is either for production 
or for enjoyment. In both cases the calculation on 
the uses is almost as complicated as that on the 
costs. For in the first case the productive power 
of the article in the hands of the purchaser varies 
with every individual according to his capacities 
and his opportunities. Of two purchasers, for 
example, in the market for lean cattle, one having 
a better farm for fattening cattle and greater know- 
ledge of the process has an advantage of ten per 
cent, over the other, and thus ceteris paribus can 
pay ten per cent. more. 

In the second case, that is, when the purchase 
is for the sake of enjoyment, the calculation of value 
in use is still more difficult; for many circumstances 
affect the estimate of every object of enjoyment by 
every individual. The only measure of such an 
estimate is in the price a man is willing to pay on 
the supposition that he cannot procure the article 
or a substitute for it elsewhere. His estimate,., 
and therefore the price, will in general be higher : 
(1) the more pressing the character of the want 
which the good relieves, like staple food or like 
fuel in a cold country : if he wait for a fall in price 
he will starve or freeze in the interval ; (2) the 
greater number of his wants that the good satisfies,. 
a cottage for example more than a carpet ; (3) the 
fewer of the same or similar goods he has already,. 
of chairs and tables for example ; (4) the larger 
his total capacity to pay, that is, the larger 
his power of purchasing ; thus a velvet gown, 
a diamond necklace, or a county seat, are of 



little or no value in private use to a workman's 

This does not mean that the velvet gown loses its utility 
when worn by the wife of an artisan, and will not give her 
the same protection against cold which it gives to a duchess : 
what is lacking in the gown is not the capacity to fulfil the 
purpose of velvet, but the capacity to be estimated by artisans' 
wives as desirable. They would come to the workhouse if 
they bought velvet gowns, and the game is not worth the 
candle ; while diamond necklaces and country seats they 
cannot demand at all, however much they may long for them, 
and however ready they may be to commit financial suicide. 
In such cases it may be convenient to say that for such people 
the article has no actual value in private use, only potential 
value, and that they have no actual or effective demand for it, 
but only potential or latent. 

The importance of a proper order of wants, of 
attending to necessaries and decencies before super- 
fluities, has already been made sufficiently plain in 
the chapters on the theory and particulars of con- 
sumption. But whether the order is a proper one or 
an improper one, it must exist, and may be called 
the actual order of wants, or the subordination of 
wants, or some such name. And this order has 
its effect on prices by raising estimates of articles 
according to the four points just now given. Thus 
some things a man must have, as we say, at any 
price ; others he will not buy unless they are cheap. 
Hence a serious rise of price in several articles he 
has been accustomed to buy, may raise them out 
of his reach and make his demand for them no 
longer effective, but only latent ; or the rise of their 
price may act in another way and put other articles 
out of his reach, if those first articles have a prior 
place in the order of his wants, and the extra 


payment for them leaves him no longer capable 
of paying for the second. 

A further complication is the fact that whereas 
some goods are only wanted singly or in small num- 
bers, like a watch, a book, a house, a side-board, an 
overcoat, a lapdog : others are wanted in quantities 
that are indefinite, and alterations in price deter- 
mine the buyer not simply to buy or not to buy, 
but to buy more or buy less. Such are the finer 
kinds of food and drink, of recreation and adorn- 
ment. Thus up to a certain point more butchers' 
meat and game are eaten, more tea, wine, and 
spirits are drunk, more tobacco is smoked, more 
excursions are made, the lower in each case the 
price. But only up to a certain point ; for there is 
a limit to our capacity for enjoyment, and if too 
many objects of enjoyment are heaped on us they 
lose all value in private use and cumber the ground, 
like white elephants with a negative value. 

There is an analogous limitation of the value in private 

use of particular instruments of production. Thus for a small 

cottager a spade is of great value for use in his garden ; a 

.'1 spade may be occasionally handy, but not a third or 

fourth, while a dozen would be sadly in the way. 

In general where the same article is divisible 
into distinct portions like pounds of tea or ounces 
of tobacco, the price that a man actually pays for 
quantity is no indication of what he 
would be willing to pay for certain portions. If 
tin pri< , be might nol give up tea and tobacco, 

bot bu If the price fell, he might not use 

ili' revenue now set free to pri ne new 


enjoyment, but might buy more tea and tobacco. 
Hence to frame a table of a man's wants in their 
actual order is a matter of almost impossible com- 
plexity, and prices paid are a very insufficient 
measure of value in use. But then fortunately 
this complexity and this insufficiency are matters 
of very little consequence. We can indeed devote 
an immense amount of time to their elucidation, 
but then fortunately for the study of economic 
science, we need not. 

A further complication arises from the fact that multitudes 
of goods are not separated by a hard and fast line from one 
another, but are more or less equivalents or substitutes for 
one another, the more or less varying indeed with individuals 
and circumstances. Such goods are, for example, the different 
varieties of tea, butter, cloth, or coal ; or the different kinds 
of meat, like beef, mutton, and pork ; or woollen, linen, and 
cotton cloth. Whether each class of such goods can or cannot 
be considered as satisfying separate wants, and be treated 
accordingly, is not easy to say. 

So much stress has been laid in recent economic 
works on what is called final or marginal utility, 
that some words on this notion are required. 

By the term marginal utility (as an amendment of Jevons r 
term final utility), Professor Marshall means the utility, or 
rather the value in private use, to the purchaser of the last 
portion of an homogeneous mass of goods which he has 
purchased; and urges that "if we take a man as he is, 
without allowing any time for change in his character, the 
marginal utility of a thing to him diminishes steadily with 
every increase in his supply of it." {Principles, p. 155.) This 
fact is called by Professor Marshall, the law of the diminution 
of marginal utility. But it seems dubious whether anything 
can be gained by such terminology and such distinctions; 
and for the following reasons : 

First, this law is scarcely applicable, except where goods 
like tea or cloth are divisible into and saleable in small 
quantities without serious loss ; and to make it applicable to 
complete articles of clothing, like hats or boots,Ut requires a 



great deal of stretching, and still more so if it is to apply to 
objects like horses and carriages, gardens, lands, and houses. 

Secondly, it seems a pity to exclude the " change of 
character," often most rapid and most effective on a man's 
demand. The appetite can be whetted, as Professor Marshall 
recognizes, and passions grow rapidly with each fresh acqui- 
sition, use, or indulgence, and drive up the demand for 
curiosities, for strong drinks, for soap and water, for opium, 
for field upon field. Crescit amor nummi quantum ipsa pecunia 

Thirdly, the diminution of value in private use seems 
rather to set in after a certain point than to begin from the 
beginning. Enjoyment on a large scale may not only be 
absolutely but relatively greater than enjoyment on a small 
scale: a full draught having greater "utility" in proportion 
than a sip, ten square yards of pleasure garden than one 
square yard. And the same kind of object when increased in 
quantity may increase its capacity of affording variety of 
enjoyment, for example, "increments" of garden allowing 
successively its use for bowls, for tennis, for archery, for 
cricket. Thus it seems impossible to admit any regular pro- 
gression upwards or downwards that could be expressed 
mathematically as a demand curve ; nor are we justified in 
laying down as a rule of all articles without exception, that 
"the greater the amount to be sold, the smaller will be the 
price at which it will find purchasers" (Ibid. pp. 159, 160), 
which Professor Marshall calls the law of diminution of marginal 
demand price. 

Fourthly, all attempted precision in distinguishing marginal 
from total utility is in vain ; for the only measure of utility or 
value is price ; and the price is paid for the whole, not for 
part. No doubt in those cases where the diminution of value 
in use really does happen, the price is a measure, not of the 

■ r's estimate of the whole, but only of the part thai 
satisfies the least urgent of his wants. But this only gives 
us the negative conclusion, known to us already, that price 
is a very inadequate measure, though the only one, of value 
or of utility, and that accurate measurement is impossible. 

Fifthly, it seems impossible to prove and dangerous to 

t that "the utility to any one oi .in additional pound 

dimii ith the number of pounds Ik- alread) has." (Ibid. 

Even the proposition thai "the happb hich 

Iditional shilling brings to a poor man is much greater 

than thai which it brings to ;i rich one" (Ibid, p. 453)1 is 

eading. For we cannol m< happine 1 or utility; 

BH only in a manner and imp< 


estimate of goods by the price they pay for them. No doubt 
many rich people get little satisfaction from their possessions; 
but then it is the same with many poor people. And though 
perhaps it can be said that more satisfaction is got from 
necessaries than from decencies or superfluities, this does 
not prove that a baker gets more satisfaction from the 
decencies and superfluities he enjoys, than a baronet does 
from his. And if happiness is measurable as supposed, and 
decreases relatively to increment of income as supposed, 
what a ready weapon for the Socialists, what a strong case 
for the general levelling of all incomes, as the only way to 
attain the maximum satisfaction. 


market prices {continued). 

From the nature and complexity of the causes 
influencing market prices it is not surprising that 
they are liable to frequent variations. The various 
changes in the arts of production, the alternations 
of good and bad harvests of all kinds of crops, the 
discovery or the exhaustion of mines, affect private 
cost of production and therefore the supply ; while 
each change in the fashion of dress, of houses, 
furniture, food, and changes in military requirements 
affect value in private use, and therefore the demand. 
In general it can be laid down that fluctuations in 
market prices will be greater : 

(a) The more necessary the goods are to life. So 
the price of staple foods, notably corn, is liable to 
violent fluctuations, like the price of wheat, which 
in 1782 was double the price of the previous year, 
and in 1836 was half what it had been in 1831. 

(b) The more insignificant the goods are in the 
total expenses of the purchasers. If nutmegs are 
trebled in price a rich family buys as many as 
before, and would buy no more if they grew three 
times cheaper. Thus extremes meet ; for the very 
important goods and the very unimportant arc alike 


in this that the demand for them is not elastic, that 
is, does not expand or contract very much according 
to the price. 

(c) The more perishable the goods are. " Thus, 
in fish markets, the price of a fish might have been 
a shilling when the market opened at five o'clock 
in the morning, eightpence at ten o'clock, sixpence 
by noon, while at three or four o'clock in the 
afternoon one could have it on his own terms. 
In the same way, strawberries are often sold on 
Saturday night at one half or one third the price 
of the morning." (Walker.) 

(d) The more expensive the goods are to keep, 
like bulky furniture requiring storage-room, or a 
dwelling-house requiring a caretaker, or a riding 
horse requiring provender. 

(e) The more untransportable the goods are, as 
hay of which the good crop in one place will not 
make up for the bad in another. 

(/) The more uncertain the number of customers 
for the goods. Thus there are great fluctuations in 
the price of British iron because the proportion of 
fixed and regular customers is so small. 

(g) The more the production of the goods is 
liable to misadventure ; so hops and fruit more than 
corn or roots, and agricultural more than manu- 
factured produce. 

(h) The more fixed and specialized the capital 
used in the production of the goods, and thus the 
less able at a small alteration in the price to be 
turned to some other purpose. 

(i) The longer time that must elapse before 


there can be any serious increase in the supply 
of the goods.* 

(k) The less the possibility of using any substi- 
tute for the goods. 

The great evil of fluctuations in prices is that on 
the part of the producers the love of steady and 
sober gains is discouraged, and speculation and 
gambling is encouraged ; while on the side of the 
consumers orderly housekeeping is rendered dim- 
cult, great hardship comes from miscalculation of 
expenses, and among the poor especially the exces- 
sive dearness of some important article of their 
consumption one year is ill compensated by its 
excessive cheapness the next year. So among both 
producers and consumers there is an absolute loss, 
and much misdirected production and misdirected 

Whether prices are steadier than they used to be is dubious. 
On the one hand the great extension and improvement of the 
means of communication have marvellously steadied the price 
of corn in all rich and commercial countries, and lightened the 
terrible anxiety about the seasons which weighed on our fore- 
fathers. But on the other hand many goods are liable to 
greater fluctuations than formerly because of the spread of 
speculative purchasing, and also because of the great increase 
of misdirected production (described supra pp. 55, 56), so that 
much of one thing is brought to market and too little of 
another, with very low or very high price as the consequence. 

These temporary fluctuations of price which we 
have just been considering must be carefully dis- 
tinguished from permanent alterations of price, that 
is, alterations in the average market price of any 
is. How long a period ought to be taken for 

stril . must vary with different kinds 

for corn some twenty or thirty yeai 


least ; for manufactured goods much less. The 
length of the period must also vary according to 
the purpose we have in view when we are making 
our observations. Thus if we are comparing the 
purchasing power of the money wages of a Scotch 
day labourer at the time when Adam Smith pub- 
lished the Wealth of Nations and at the present time, 
we ought to strike our average price of the main 
articles used by such a day labourer from the prices 
of the five or six years preceding the two dates. 
But a much longer period is required if we are 
trying to ascertain the effect of a great discovery of 
gold on prices in general, or the effect of some new 
technical process on the price of some particular 
article, like Bessemer's process on the price of 

Observe that all alterations in average market prices can 
be reduced to two heads, those due to alterations in the 
exchange-value of money, and those not so due. The first 
can be called nominal alterations and result in average prices 
in money being all higher, or all lower; the second can be 
called real alterations and result in the average prices in money 
of some goods being higher, and of other goods lower, accord- 
ing to permanent changes in private costs of production, or 
permanent changes in values in private use, or both. For 
further explanation we must wait till we reach the discussions 
on money, only observing here that in all good histories of 
prices the difference of nominal and real alterations of average 
market prices must be made quite clear. 

We have yet to point out and illustrate the 
characteristic advantage of markets, market prices 
and free competition. This advantage, and it is a 
very great one, is that by the action already suffi- 
ciently described of buyers and sellers in a market, 
a strong pressure is exerted in favour of goods being 



provided by those who can provide them at least 
private cost, and in favour of goods being obtained 
by those to whom their value in private use is 

A few diagrams will perhaps make this plainer. 
Take for shortness a market of seven groups only 
of competing sellers (or offerers), A to G, and seven 
groups of competing buyers (or demanders), H to 
O, and for simplicity let each group be composed 
of the same number of persons, and as the case be, 
offer or demand the same quantity, say ten, of the 
same merchandize which can be called x. And 
under cost let us include profit enough to induce the 
sellers to go on bringing x to market ; and under 
use let us include profit enough (as commission on 
re-sale) to induce the buyers to come again to get 
x at the market. If this is all understood, and if 
the cost to each dealer in each group of sellers can 
be reduced to a money figure, and amounts per unit 
of x to the sum named in the following table, and if 
the use to each dealer in each group of buyers is in 
like manner what is named in the table : then a 
glance at that table will show us how much of x can 
be sold according as the price is higher or lower. 

Cable i. 

lips of sellers . . . 
Cost v, in dollars 

<>f buyers . . . 

Valuf In 1 ;k h l»i. 
iu doll. 11 J 

















K 1. 












Various amounts sold according to price. 

Amount sold. 

None can sell ; H to O can buy . . o 

A can sell ; H to O can buy . . 10 

A and B can sell ; H to O can buy . 20 

A, B and C can sell ; H to O can buy . 30 

A to D can sell ; H to N can buy . 40 

A to E can sell ; H to M can buy . 50 

A to F can sell ; H to L can buy . 40 

A to G can sell ; H, J and K can buy . 30 

A to G can sell ; H and J can buy . 20 

A to G can sell ; H can buy . . to 

A to G can sell ; none can buy . . o 

Price in 









Now in this case the market price of x must be 
five dollars ; no other price is possible in open 
market, and no other price will give so great a 
sum of advantage to both producers and consumers; 
for those are eliminated to whom the goods occasion 
the most cost and to whom they are of the least use, 
namely, F and G on the one side and N and O on 
the other ; and thus markets are a means whereby 
exchanges are made precisely between those who 
can exchange with the greatest mutual advantage, 
while the inefficient on either side are excluded. 

If we cut off the weaker traders on either side there is 
greater room for fluctuation. Let only the four stronger 
groups on each side remain in the market : 

Gable it 

Groups of sellers 

Cost to each seller in dollars . . 

Groups of buyers 

Value in use to each buyer in dollars . 



















In this case all the traders can deal, and the whole supply 
be sold whether the price be 4, 5, or 6 dollars, though probably 
the stiffer resistance of D and the slacker demand of L will 
cause the price to settle down at 5 dollars. 

If the demand is weaker the price will be less ; if, for 
example, we cut off the two best placed buyers and leave the 
sellers as before : 

Gable UU 

Groups of sellers . . . 
Cost to each seller in dollars 

























Groups of buyers . . . 

Value in use to each buyer 
in dollars 

In this case at the old price of 5 dollars only, 30* can be 
sold, whereas at 4 dollars as much as 40*, and at 3 dollars as 
much as 50*. But the same quantity can be sold if the price 
is two dollars or even one ; and the competition of the sellers 
will drive it down to one dollar, where it will remain, and the 
less competent producers F and G be eliminated. 

If the supply is weaker, the price will be more; if, for 
example, we cut off the two best placed sellers and leave the 
buyers as before : 

Gable iv. 






















5 4 

Groups of sellers . . . 
Cost to each seller in dollars 

Groups of buyers . . . 

Value in use to each buyer | 
in dollars 

In this case at the old price of 5 dollars only 30ft CAD be 
Bold, wl.' • 6 dollar! as much as 40.V ; and ;it 6 dollars 

price will remain, as a further rise would reduce the 
.iit - old to 30-T. 



Let one more table be added to illustrate the 
case of a commodity being scarce. Scarce goods are 
those of which the supply for all practical purposes 
cannot be increased. If such goods are single 
objects or very few in number, it is plain that they 
cannot be sold at market prices ; for a market 
implies a number of competing sellers. Where, 
however, the goods are numerous enough to be 
in the hands of such sellers, say of the groups C 
and D above (each group be it remembered con- 
taining a number of competing sellers), in such case 
there will be a genuine market price for the goods, 
to which we can give the name of a scarcity market 
price, and the amount of which we can see at a 
glance from the following table. 



















arable v. 

Groups of sellers . . . 
Cost to each seller in dollars 

Groups of buyers . . . 

Value in use to each buyer 1 
in dollars J 

In this case the goods cannot be kept down to 
the old price of five dollars, because at that price 
the demand is for $ox, while the whole possible 
supply is limited to 20*. The price will rise to 
eight dollars, but cannot rise higher, because the 
demand would only then be for io#. 

Many other tables might be given and made 
much more complicated; but this would defeat their 


purpose of making things clearer to the student. 
Of course in reality there are not uniform groups 
like those supposed in the foregoing tables, but 
endless gradations in the individual costs and uses; 
and there is no uniform offer of a certain quantity 
and demand for a certain quantity, but endless 
varieties, and variations also according to the price. 

It is very important rightly to estimate the 
function of the market that we may avoid indis- 
criminate enmity or indiscriminate affection towards 
competition. By the working of the market and by 
the great differential gains which it allows successful 
producers to secure, a premium is given to wise 
production and a penalty to incompetence, and the 
national industries are likely to be directed into the 
most profitable channels. 

But then remember two points : First, that 
because competition within a market is in its right 
place, and suitable, this is not a reason for its being 
suitable elsewhere ; for then a bull because useful in 
a farm would be useful in a china shop. Secondly, 
that even the operations of the market may be an 
effect of mischief and wrong. Thus in our tables 
above perhaps x really was sugar, and the reason 
why it cost so little to A and B was that they were 
slave-owners or the agents of slave-owners whose 
private costs of production were low because they 
minimum of subsistence to their slaves. Or 
perhaps x was butter, and the reason why II and J 

id give such a high price, was that tluy were 
in alliance with dealers who supplied a poor and 
helpli i population in a great < ity, and by the 


contrivances of adulteration, of false weights, and of 
getting their customers into their debt, were able to 
make extortionate charges. Only observe in such 
cases the market is not the cause, but the effect or 
the expression of the evil ; and the remedy is not to 
close the market, but to free the slaves, to punish 
the extortioners, and to organize the helpless. 

Pitfalls, (i) To imagine that, quite distinct from market 
price, there is such a thing as normal price, normal value, or 
natural value, to which market price is continually tending 
and must in the long run conform. For this doctrine is a 
consequence of the doctrines of a normal rate of profits and a 
normal rate of wages, which, as we shall see plainly in the 
second and fourth chapters of the next Book, are illusions, and 
their consequences therefore illusory. This search after the 
normal or natural has truly been the pursuit of an ignis fatuus 
in which many economists have wasted their energies and 
wearied their students in vain. For they are involved in the 
contradiction that the very mobility of industry they pre- 
suppose as requisite to their theory is destructive to it, by 
ever calling fresh causes into action, and starting new move- 
ments that will effect prices, so that the longer the run, the 
more hopeless the pursuit of a normal price. The theory in 
truth requires us to assume simultaneously both the mobility 
and the immobility of industry. Nor must we apply the term 
normal price to average prices. For by normal is implied a 
force that acts to bring prices towards a certain point, whereas 
by average is merely meant a sum of results. No doubt the 
term normal or natural price may be applied to what we have 
called proper market price ; but as in fact the terms proper 
and natural have been used by Cairnes to express opposed 
ideas, it is courting confusion to use them for the same idea. 

(2) To ignore the complexity of the forces acting on market 
price as though there was one actual cost instead of many 
costs, one actual value in use instead of many values in use ; 
or as though all depended on costs, or all on uses, when in 
fact costs and uses are mutually dependent on each other,, 
and the market price is the outcome of their interaction. 

(3) To say with Mill that the law of the value of agri- 
cultural produce is determined by the cost of that portion of 
the supply which is produced and brought to market at 
greatest expense. For first, as far as it is true that the 
highest costs determine price, this is true not only of agri- 


cultural but also of manufacturing produce, inasmuch as the 
law of diminishing returns and many other grounds of different 
costs of production (as we shall see in the fifth chapter) apply 
not onlv to agriculture, but also to manufactures. And secondly 
it is misleading to speak of the highest costs determining the 
price, when these costs are themselves in part determined by 
the value in private use : the demand in part determines to> 
what height the costs shall rise, witness the frequent opening 
of less advantageous sources of supply as a consequence of an 
actual or anticipated rise of price. 

(4) To say that the value of good depends on the amount 
of labour required to produce them. For even if we do all we 
can to make the proposition reasonable, if we exclude scarce 
articles like old china, good pictures, houses in a favourite 
district ; if we exclude goods of which there is a glut, like 
abundant fish in a slack market, or houses in a neighbourhood 
that has become unfashionable ; if thirdly we exclude all 
goods except those sold in a fair and open market : still the 
proposition is quite untenable. For the only measure of value 
— not a perfect one, but still the only one — is price ; and a 
bale of cloth made at a mill in an excellent situation for 
receiving materials and fuel, and fitted with excellent 
machinery, though made with ten per cent, less labour than 
another bale, is sold nevertheless for exactly the same price ; 
and a bushel of corn coming from a fertile adjacent farm and 
raised with twenty per cent, less labour than another bushel, 
is sold nevertheless for exactly the same price. 

Surrounded with these pitfalls, let the student ever keep« 
in rnind as his safeguard the following brief propositions:. 
{a) That the only measure of value is price, (b) That if we 
seek precision, we should speak of prices, not of values^ 
(c) That market prices are those which result from the action 
of free, as distinct from one-sided, competition, (d) That 
market prices depend directly on demand and supply, (e) 
That market prices indirectly depend, not solely on private 
costs of production, nor solely on values in private use, but 
on both. (/) That among the varying figures of markel prices 
we can strike an average, as anion.; any other \ figures* 

ond such average market price:., there Is no such 

normal, natural, or long-period prices, which arc but 

: the Imagination. 
■ a full proof ot this la t propo itionthe reader must 
trail till the second chapter of the Third Book. The other 
:it to be sufficiently 1 lear from whai has gone 




A market, as defined in the last chapter, implies a 
number of buyers and a number of sellers, and a 
certain equality of technical knowledge and capacity 
on either side. And then, from the nature of the case, 
the market price that results will be a fair price. 

But an immense number of sales are not made 
in a market at all ; and the prices in all such cases 
are non-market prices. 

The distinction between market and non-market 
prices is not the same as that between wholesale and 
retail prices. For though practically they often 
come to the same thing, it is not always so. Thus 
wholesale transactions sometimes (in America often- 
times) are not between two sets of competitors, but 
between a set of competitors on one side and a 
monopolist on the other. And there are many 
retail markets, namely, where the buyers have the 
technical knowledge needful for a market price to 
be properly formed. 

Observe that in proportion as a market, whether 
wholesale or retail, becomes badly organized, and 
one person is liable to hold a great portion of the 
supply, or to be by far the greater demander, the 


case becomes assimilated to those we are now 
coming to, and the title of market becomes a 
misnomer. No very sharp line indeed can be 
drawn between what is and what is not a market ; 
but quite sufficient a distinction for the purposes 
both of science and legislation. 

Now in all these cases where there is no proper 
market, competition either does or does not prevail. 
Let us take first the case where it does prevail, 
namely, competitive non-market prices ; the competition 
being from the very nature of such cases not free 
competition, but one-sided. 

If the whole stock of any particular commodity 
or a great part of it is in the hands of one seller or 
combination of sellers, or if the whole or a great 
part is demanded by one buyer or combination of 
buyers, this fact is called a monopoly. And if in 
such case there is much competition, that is, if a 
number of competing buyers face one seller, or 
a number of competing sellers face one buyer, the 
price thus settled is called a monopoly price. 

Pitfall. To confuse competitive prices and market prices, 
like Mill, who says, that " where competition is not, monopoly 
is." In reality the very essence of monopoly implies competi- 
tion, one-sided indeed, hut still competition. The ground of 
the mistake is the want of clearly distinguishing hetwocji U*e 
ry different kinds of competition, one-sided and fr< 
Though monopoly, as the word itself may remind us, is 
i the side of 1 IN 1 . it is nol unknown <>n the 
side of buyers. A common de <>! fish l>y 

fishermen who face a trader "i combination 

of t.- and have to surrender their produce for very 


ware of confusing monopoly and 1 here may 

1 in iii<- l.i t i bapter, 
hut a monopoly markel prii ontradi< tion in term 1. No 



doubt often the fact of a scarcity creates a practical monopoly,, 
as of some vineyards. But the price is only a monopoly price 
if it is raised above what would be the scarcity market price. 

Now a monopoly price is presumably a higher 
price than if there had been a market, in other 
words, if free competition had prevailed instead of 
one-sided competition. Let us illustrate this by a 
table, taking exactly the same conditions as in the 
first table of those already given, with this difference 
that all the sellers are combined into a great trust 
or syndicate, or have all been brought up by one 
great enterpriser. 

liable vi. 

Syndicated businesses . . 
Cost to each in dollars 

Groups of competing buyers 

Value in use to each buyer 
in dollars 






























Various gains of the monopolist according to the amount sold. 
If he sells box as he can at 4 dollars he gains 60 dollars. 

?> ' J> 

5 ox » 



100 ,, 

>J ?5 

40* ,, 


» » 

140 ,, 

?> 5> 


„ 7 



>> 5) 

2ox ,, 

,, 8 



J5 »5 

IO* ,, 




In this case, unlike where there was free com- 
petition, and 50* was sold at a market price of 
5 dollars, only 30* is sold at a monopoly price of 
7 dollars. The syndicate closes the works that 
were carried on by groups D and E in the old 
days of an open market, and keeps open only the 


2I 3 

works that were carried on by groups A, B, and C, 
making by the high price a profit of 60 dollars on 
the first of these, 50 on the second, and 40 on the 

This is the root offence of monopolists, that by 
lessening the supply they gain their own private 
advantage to the public loss. Thus spices were 
destroyed by the Dutch in the East Indies ; thus, 
in older times, corn was withheld or even destroyed 
to produce or aggravate a scarcity; thus, in our own 
time, milk has been bought up and spilled in the 
State of New York ; for only by limiting the offer 
is it possible to maintain monopoly prices. Such 
practices and others like them are forms of the 
evil of withholding national resources, other forms of 
which, notably clearances of estates, have already 
been sufficiently explained at the close of the eighth 
chapter of the previous Book. 

A monopoly need not result, nay is very unlikely to result, 
in the smallest possible supply at the highest possible price ; 
for example, taking the figures in Table vi., is very unlikely to 
result in the supply of only iox at the price of 9 dollars. The 
evil of a monopoly, that the supply is less and the price higher 
than if there were an open market, is bad enough to need 
no exaggeration. 

In the middle ages there was constant danger of 
unscrupulous speculators " forestalling " the supply 
before it reached the market, or "engrossing" it by 
baying up the greater part, and then " regrating " 
it, that is, selling it again at an exorbitant price. 
Sorts were needed on the part of both State 
and Church to protect the freedom of the market 

* monopolies and combinations, and to enable 


a proper market price to be reached. The need for 
intervention of this sort may recur ; nay, in view 
of the vast development of joint-stock companies 
within the last fifty years, and of combinations of 
producers within the last twenty years, has already 

Had Adam Smith witnessed the effect of "engrossing" on 
the price of wheat in Chicago and New York, or if again he 
had had any real knowledge of the circumstances of the 
middle ages, he would not have compared the fear of 
engrossing and forestalling to the fear of witchcraft. What 
he knew well were the circumstances of Great Britain in his 
own time, which were very unfavourable to combinations ; 
and this particular observation joined to his general theory of 
man's natural virtue and capacity, and the fitness of laissez- 
faire, led him to adopt a doctrine which (as we have seen 
when treating of famines) was to produce in the following 
century such evil fruit. How to secure a fair market in the 
present day is no doubt a difficult problem, and before the 
end of this Book we shall make some suggestions towards its 
solution. But no difficulty in the way should hinder us in 
some attempt to restrain such unscrupulous speculations, as- 
distort the American markets for cotton, coffee, wheat, maize, 
lard, pork, bacon, and hogs ; or should hinder us in some 
attempt to treat all tampering with a market as a mis- 
demeanour or a crime. 

An apology for monopolists is sometimes urged 
that they have special advantages for production 
which outweigh the loss to the buyers from the 
absence of a market. Let us grant in many cases 
the special advantages : the question whether they 
outweigh the loss, remains; and it will be found 
that the advantage must be great indeed if it is to 
turn the balance. Let us alter the row of costs in 
Table vi. and make them very favourable to cheap 
selling by multiplying the most efficient businesses, 
as follows : 



Gable x>ii. 

Syndicated businesses . . 
Cost to each in dollars 

Groups of competing buyers 

Value in use to each buyer 
in dollars 































ii 5°* 

> >» 5 »> 5 


,, 4.0X 

„ 6 „ 


M 30* 

„ 7 » 


,, 20# 

„ 8 „ 


,, IO# 

, » 9 »» > 

Various gains of the monopolist according to the amount sold. 

If he sells 60* as he can at 4 dollars he gains 120 dollars. 




80 „ 

Even in this case the monopoly price will be 
6 dollars instead of a market price of 5 dollars, and 
only 40* will be sold instead of 50*. 

And remember, as often and rightly urged, the 
ability to exact monopoly prices is a premium on 
incompetence, because a great spur to efficiency 
is taken away ; and thus often the result would be 
the multiplying of the less efficient businesses, the 
E, and F, and G of our Table, rather than of A, and 
ii, and C, the more efficient. 

Hut let there be no exaggeration; for first the 
advantages of single management in some cases and 
of production on a large scale are so great as really 

outweigh the advantages of a market ; and the 

monopolist finds his greatest gain in charging some- 
what less than what would have be< n the market 
price had there been no monopoly. Sin b is the 


contention of the famous monopoly of mineral oil 
in America. 

Secondly, a monopoly by no means implies of 
necessity a monopoly price ; for precisely goods 
that are monopolized form a field for the application 
of tariffs, that is, for their prices being fixed by 
authority ; and it may be possible to secure the 
advantages of monopoly in the field of production 
without the disadvantages in the field of exchange. 

Thus in the case just given in Table vii. where the monopoly- 
price was 6 dollars and 40* was sold, the monopoly might still 
Temain and the price be fixed by authority at 4 dollars, in 
which case, the monopolist no longer having a motive to 
restrict the supply, the amount sold would be 6ox, and the 
buyers and the nation would gain more than if, as set forth 
in Table i., there had been many competing producers and a 
genuine market price. These fancy figures illustrate the solid 
fact that in some cases, like the supply of water, gas, or 
electricity, or communications by railway, post, or telegraph, 
an official tariff can be permanently and profitably at a lower 
figure than could be reached under the most efficient com- 

Thirdly, even when no price is fixed by authority, 
it may happen in the case of a practical as distinct 
from a legal monopoly, that a moderate price is 
fixed by the monopolist, in order to reduce to a 
minimum the temptation to outsiders to break down 
the monopoly. The perpetual fear of competitors 
may thus act as a perpetual moderator of price, and 
may render any intervention of authority unneces- 

Sometimes the fear of public opinion, or simple philan- 
thropy, or a sense of justice, or a far reaching plan of 
developing future business by present sacrifice of possible 
.gain, may keep the monopolist from charging or charging fully 



a monopoly price. The sum of the advantages gained in all 
such cases, partly by the monopolist and partly by the buyers, 
is called by Professor Marshall, compromise benefit. 

Fourthly, in certain special cases a monopoly 
price, though an immediate loss to the community, is 
an ultimate gain. These are the cases of patents 
and copyright. A patent allows to the inventor 
exclusive rights of use or sale of some particular 
article or process for a certain time. If the inven- 
tion is of any use and brings any benefit to the 
patentee, there is a probable loss in depriving others 
of the power to use it : but there would be a much 
greater loss if the spur to invention were removed 
which is given by the prospect of a patent ; and the 
many discussions on this question seem to result in 
the conclusion that no other way of stimulating 
inventions is open to less objection than the system 
of patents. Mutatis mutandis, the same can be said 
of copyright. 

In retail dealing, especially where the purchasers 
are poor, and a number of workmen are practically 
compelled to get their goods at one shop, or a few 
shops acting in collusion, a monopoly price is 

In retail dealing, again, we often meet as distinct 
both from monopoly and from market prices what 
may be termed private or personal prices, namely those 
that depend on the personal character and private 
circumstances of the individuals who strike tin.' 
:tin. A man skilful or unscrupulous, and who 

I not mind loss of time <>r dignity, can sell for 
more or buy for less. There is, therefore, inu< li 


saving of time, trouble, and untruth, by prices being 
fixed for all customers alike, and fixed for some 
considerable time, though in the meanwhile whole- 
sale market prices may fluctuate. This last arrange- 
ment is not unfair, being of the nature of a tacit 
mutual insurance against fluctuations in price, and 
being a convenience to both parties. 

An immense amount of time, as often has been observed, is 
wasted in bargaining in the East. In the United States also, 
in the provincial towns, the storekeeper asks 25 per cent, 
above what he will take, and a regular battle of bargaining 
called "Jewing down" has to be fought out before the price 
is settled. 

Observe that many sales by auction, although there is only 
one seller, partake of the nature of a market, whenever similar 
goods are often being sold at no great distance either of time 
or space. Besides there is a set-off to the singleness of the 
seller in the probable fact that he is desirous of selling then 
and there. In cases, whether of sale by auction or private 
dealing, where the most a buyer is prepared to give reaches 
a figure far above the least a seller is prepared to take, it 
makes a great difference who first proposes the price ; for on 
this depends whether the upper or lower figure is first reached. 
So the price at an ordinary auction is not likely to be so high 
as at a " Dutch auction," where instead of beginning with an 
absurdly low price and working up, the auctioneer begins with 
an absurdly high price and works down. Sometimes also 
excitement will raise the price at an auction higher than at a 
private sale ; for many people who are not regular traders are 
not fully conscious of what a thing is worth to them, its value 
in use to them is vague, and they do not know their own minds. 

Legitimate skill in making a bargain is one thing, 
fraud and extortion are another ; and retail dealing 
has been disfigured over and over again by these 
latter abuses, and has exhibited the notable world- 
wide phenomenon of exorbitant retail prices. 

It is indeed quite fair that retail should be higher 
than wholesale prices : the dividing into small 
portions, the holding of many stocks, and in general 


the business of distribution, is costly, taking much 
time and trouble and requiring more or less property 
to be used or used up in storing or preserving goods. 
But a reasonable payment for such costs is far from 
accounting for the immense divergence often seen 
between retail and wholesale prices. One ground 
of this divergence is that rich buyers shrink from 
bargaining as a humiliation, or are negligent in their 
housekeeping, and leave to servants to pay ; and 
thus pay whatever is asked. Another ground is the 
real trouble of making a bargain : people have other 
and better uses for their time than chaffering, which 
for many is indeed a practical impossibility. 

Two examples of exorbitant retail prices among the higher 
and middle classes in England are payments to undertakers 
for funeral expenses, and to builders and decorators for the 
building, repair, and decoration of houses. Notice, that where 
tradesmen habitually give a commission to servants on their 
master's purchases, retail prices seem higher than they really 

But the divergence between retail and wholesale 
prices has a third ground which is a crying evil. 
Advantage is taken of the ignorance, or hurry, or 
timidity, or dependent position of the poor, and 

rbitant charges are made and paid. Sometimes 
the oppression is open, and when by means of 
iniquitous laws of debt a trader can bring a poor 
family into subjection to him and make them buy at 
his owu terms. Sometimes the oppression is veiled 
Under some one of the many varieties of fraud, 
notably the use of false weights and mea tires, and 
the ale of adulterated in teadofgenuii id . 

Where laws and custom such that exor- 


bitant retail prices are common, an unfortunate 
consequence is likely to follow that so many are 
attracted into the retail business as to make fair 
and reasonable prices insufficient to give them a 
living ; and then it is impossible to remedy the evil 
without much hardship falling on some who little 
deserve it. Thus the spread of what are known as 
co-operative stores among the middle classes and 
the artisans in some of the large towns in England, 
enabling retail buyers to avoid fraud, adulteration, 
and overcharge, as well as the temptation to get 
into debt, though an admirable reform, has inci- 
dentally caused injury to many honest trades- 

Observe that such stores do not remove the cost 
of retailing. They must be borne by some one, and 
they take the shape, partly of the excess, small 
indeed but still an excess, of store prices over 
wholesale prices ; partly of the buyers having more 
journeying and carrying to do, and spending more 
time and trouble over their purchases, and buying 
in larger quantities at one time, and getting less 
exactly what they want, than if they had efficient 
retail dealers close at hand who made it a business 
to know and satisfy the wants of their customers. 
Hence if our laws on adulteration, on fraud, on debt, 
and on extortion were different, the field for co- 
operative stores might be much smaller. In the 
United Kingdom the law or its execution is 
scandalous and lamentable : the poor are grossly 
and frequently defrauded, and where a conviction is 
secured, the convicted cheat escapes with a fine, 


often paltry, and is allowed to go on holding his 
position as before. 

Pitfall. To say with Adam Smith that shopkeepers and 
tradesmen can never be multiplied so as to hurt the public ; 
for they can be; and, in fact, in a thousand instances in our 
own land they have been. 

From these ordinary cases of exorbitant prices we must 
distinguish famine prices where a necessary of life has become 
scarce. Such prices may sometimes be market prices, but 
not thereby to be justified; for because the market in ordinary 
circumstances is an excellent contrivance, this does not make 
it so in extraordinary circumstances, and it is not so in a 

Fancy prices are not necessarily unfair ; for if the fancy is 
shared by many there is some approximation to a market, as 
in the sale of curiosities like coins or stamps, or of works of 
art, like that masterpiece by the French painter Meissonier, 
measuring 20 inches by 30, composed of materials worth some 
20 shillings, and having taken some two or three months to 
paint, and yet sold by its possessor for £20,000, and resold, 
without fraud or pressure, for £34,000. But if the fancy is 
individual to a man you have no right to take advantage of 
it, or if the object is only of high value to a man because he 
can be annoyed by it, like a strip of ground next to his. On 
which matters the volume of this series by Father Joseph 
Rickaby on Moral Philosophy, pp. 255 — 257, can be consulted. 

Distinct from monopoly prices on the one hand, or 
personal prices on the other, are those paid by one mono- 
polist to another, for example, by a mining company to the 
company owning the mineral railway on which the ore has 

be carried to the port whence it has to be shipped. In 
such cases, if there is tolerable equality of strength and toler- 
ab! ableness in the managers, a fair price is likely to 

reached ; but failing these conditions there may be most 
unfair contracts or disastrous combats. 

Sometimes prices have been fixed by law, either 
customary law or strict positive exactmcnt. They 
may 1)': railed respectively customary and legal frier , 

1 tlie word tariff used as a common term for 
both. Thus in many old village communiti h 

family had an hereditary trade, as that of black- 
smith, shoemaker, or potter, and charged prices 


fixed by immemorial custom, quite unlike the com- 
petitive dealing with strangers in a market, where 
they would make the best bargain they could. 
Even in Western Europe wherever friendly relations 
exist in remote and quiet places, the habitual regu- 
lator of retail prices is old custom modified from 
time to time, according to the changes of costs or 
uses, by the sense of fairness. This fact is noticed 
by Mill ; but he should have added that where such 
customary prices exist they have the great advan- 
tage of saving much time, trouble, uncertainty, and 

Positive law has frequently interposed to fix 
prices, notably for chief articles of food and drink 
in towns, as for bread and ale during many centuries 
in England. And often when privileges are given 
like plying for hire in the public street, or mono- 
polies, like the supply of water, or gas, or railway 
transport, a maximum price is fixed by law. 

In all such prices observe that an authority can- 
not fix what price it likes. The private costs of pro- 
duction on the one side, and the values in private 
use on the other side, form a boundary of possibili- 
ties ; and absurdly low or absurdly high legal prices, 
if enforcement were possible and secret sales could 
be stopped, would put an end to all buying and 
selling. But between these boundaries of possibility 
there is a wide field in which prices can be fixed by 
law. Whether they ought to be is indeed another 
matter ; and in our private dealings, if we are going 
to call in the police, we must show good cause why. 
Unfortunately there are only too many cases in 


which such good cause can be shown, and notably 
in the following three : 

First, where there is a monopoly ; for here, as 
shown at the beginning of this chapter, the inter- 
vention of some authority is needed to secure a fair 
price instead of a monopoly price. Hence the need 
of a tariff fixed by law for railway rates and fares, 
for gas and water rates, for tolls on ferries and 

Secondly, where although there may be com- 
petition on both sides, the trouble of making a 
separate bargain in each case is very great. So 
notably in hiring carriages ; and all travellers can 
bear witness to the blessings of a well enforced 

Thirdly, where poor people in retail dealing are 
liable to be charged extortionate prices. Only in 
this case the mere tariff is not enough, and stringent 
measures against adulteration and selling goods of 
bad quality or short weight are needed. 

The more simple goods are and the more alike, the easier 
can prices be fixed for them by law ; for a quartern loaf or 
1,000 feet of gas, for example, more easily than for a pair of 
fowls or a cloth coat. Hence in general a tariff of goods that 
much vary in their quality should be avoided because it can 
so easily be evaded. 

Pitfalls. (1) To think with a thoughtless populace that the 
roment, if it only has the good-will, can fix and maintain 

bat it pleases. 

To say that it ss for a Government to try to fix 

by law, because pri< ea must be determined by 

supply and demand, ai cording to the well-known Legal maxim, 

t (juanti vouli j \ though a ertion, even in 

Latin, v. assent. 

J 1 ay all pri< cs air either competitive ox 
jy; for it is a greai abuse of Las when prices 

1 ttled by a pi 1 1 ate 


bargain struck between two individuals or two corporations, 
to call such prices either competitive or customary. 

(4) To say that the Government ought or ought not to fix 
the price of bread or coal or gas, without first examining care- 
fully what is the sort of Government, what the condition of the 
country, what the organization of industry, and a multitude 
of other circumstances, all of which are different in different 
cases. For in economics, as in diet and medicine, it is needful 
to know the constitution of the patient. 

From this chapter and the last we can draw the 
conclusions that a fair price is when price is within 
reasonable limits a true expression of exchange- 
value ; that we may presume market prices therefore 
are fair prices ; and, assuming ordinary good sense, 
that customary and legal prices are fair also ; but 
that exorbitant prices due to monopoly, or com- 
binations, or spreading false news, or fraud, or 
pressure on the poor and distressed, or knowledge 
of a peculiar personal (as distinct from general) 
affection of the buyer, or of his peculiar ignorance, 
are unfair. And far from fairness being an arbi- 
trary, vague, and impracticable notion, the truth 
is that in ninety-nine cases out of a hundred, both 
in wholesale and retail trade, a jury of honest 
dealers could agree on what was the fair price, or 
the upward and downward limits of fair price, in 
other words, on the justum prctium suntmum, medium,, 
et infimum of any article they were accustomed to 
deal in. They might blunder about the reasons, 
not about the conclusion. 

In fact, as Professor Marshall points out {Principles, pp. 652, 
653), there is in each trade and branch of trade a more or less 
definite fair rate of profit recognized on each transaction or 
turn-over ; in other words, a fair price adequate to give such 
rate of profit : a price an honest man is expected to charge 
for making goods to order, and what a court of law will allow 


in case a dispute arises between buyer and seller. He well 
observes how instructive is the "expert evidence" in such 
cases, and how under cross-examination the reasons latent in 
their minds are brought out and generally show that if the 
recognized fair price is higher in one case than in another, 
the reason is that the first case requires " a longer locking up 
of capital, or a greater use of expensive appliances (especially 
such as are liable to rapid depreciation, or cannot be kept 
always employed, and therefore must pay their way on a 
comparatively small number of jobs) ; or that it requires more 
difficult or disagreeable work, or a greater amount of attention 
on the part of the undertaker [entrepreneur] or that it has 
some special element of risk for which insurance has to be 

The foregoing doctrine on fair price accords with that of 
the Scholastics on justum pretium : there must be equality 
between the pretium and the res, that is, the price to be fair 
must properly express value. But then exchange-value is by 
no means any innate quality, depending on the perfection of 
the object, else mice would be more valuable than corn, or on 
its adaptability to man's uses, else a bushel of corn would be 
more valuable than a diamond, but mainly on the public 
estimate of importance. The estimate may be unreasonable — 
nay, much of our current views are unreasonable — as of the 
Ethiopians ready to give gold s and trinkets, but still 

is an estimate, and the vulgare \ retium is rightly determined in 
the main by the vulgaris cc 

1 r further details and for a refutation of the calumny that 
the scholastics referred all value to labour, we can refer to 
Costa Kossetti, Allgemeine Grundlagen dcr Nationalvkonomie- 
Freiburg, 1888, c. xv. 



In the case of all market prices and in many other 
cases where there is one price but many sellers, or 
many buyers, or many of both, this one and the 
same price gives very different advantage to the 
different dealers, to the sellers and producers on 
the one side, and to the buyers and consumers on 
the other side. Thus on looking to the first table 
given above in chapter hi., the reader will see that 
the one price of five dollars gives much more 
advantage to A than to E among the sellers, and to 
H than to M among the buyers ; and great stress 
has already been laid on the beneficial effect of a 
good market, that it gives a premium to more 
efficient producers, and enables goods to reach 
those consumers to whom they are of the most 
advantage. A word is needed to express these 
differential gains resulting from a common price, 
and the best word seems to be differences. 

This word includes the two terms suggested by Professor 
Marshall, his producer' 1 s surplus or producer's rent on the one 
side, and his consumer' 's rent on the other ; as well as what he 
speaks of elsewhere as a quasi-rent afforded by differential 
advantages. When, however, we have at our disposal such 
terms as surplus, premium, or differences, it seems a pity to 
u >e the term rent to express differential gain. It is better 


indeed to use the term rent to express all such gain than to 
express after the manner of Ricardo one particular kind; 
which manner of speech, as we shall see in the Third Book, 
is open to very grave objection. But best of all seems the use 
of the term rent to express receipts from property alone, 
making it form one of three great heads of distribution, the 
other two being wages, which are receipts from labour alone, 
and profits which are receipts from labour and property 
combined ; all of which will be duly explained in the next 
Book. It is enough here simply to give notice that we are 
using rent in one sense, and differences in another. 

What has already been said on the varieties of 
the private costs of production and of the values in 
private use to different persons may serve in general 
as giving the grounds of differences. In this chapter 
certain particular grounds that can be distinguished 
by different capital letters deserve to receive our 
particular attention. 

(A) Personal capacity of the merchant or manu- 
facturer or carrier or grower or breeder, is a very 
important ground of differences, as can be seen by 
the varieties of success or failure where the circum- 
stances are similar, but the men dissimilar. Some 
years ago an American economist reckoned that 
of the entrepreneurs starting a new business some 
three-fourths failed within five years ; and a recent 
American writer approves the estimate that 90 

cent, of all the men who try to do business on 
their own account fail of sue : while in France 
the number of new undertakings that are really 
successful is reckoned ;it not more than 15 per cent. 
of the whole. In England any large Landowner of 
bear v. itm \ to the differ nee 
.1 a stupid and iible tenant. ( )f two 

joint tmpani< s in much the 1 ame po ition, 


one may give the shareholders two per cent., and 
the other ten per cent., according to the competence 
of the general manager. And the many employers 
who have risen from the ranks of the workmen, 
in parts of England more than half, in parts of 
America more than nine-tenths, prove to us that 
though a man's a man for a' that, nevertheless one 
man is not as good as another. Only remember 
that "goodness" and "capacity" in the business 
sense is the power of diminishing private costs of 
production, not public costs ; and that the capacity, 
as already has been observed, may be the capacity 
to lie, cheat, bully, goad, extort : to ruin rivals 
without scruples or mercy : to take the utmost 
advantage of the weakness of the poor and of the 
liability to depraved consumption : to encourage 
this consumption to the utmost, and thus to cause 
the utmost waste. But remember also that one 
great portion of business capacity is the power of 
attracting and preserving the services of skilful and 
energetic subordinates and putting the right men in 
the right place. 

A striking example of the effect of capacity in selecting 
and managing animals is to be found in a report on 88 dairies 
in the State of Wisconsin, giving the following results among 
different groups of dairies. {The Times, March 10, 1890.) 

Number of dairies. Number of cows. Average earnings per cow. 
16 246 £480 

30 6 54 5 13 8 

29 483 7 16 10 

10 172 9 19 4 

2 10 11 6 6 

1 5 16 4 5 

The absolute figures of the earnings may perhaps be too 
high or perhaps too low ; but this will not affect the point of 
the illustration, which is the great difference of earnings. 


(B) Friends and favour, or what is called a good 
business connection, is often of the greatest value 
and gives one man twice the profits of another. 
If indeed a man's many customers come from his 
own energy and from his skill in advertising, this 
advantage falls under the previous head ; for under 
the present head we are dealing with what is due to 
other people or to good fortune. 

(C) Mere accidents may for a time at least cause 
a great difference in returns. Thus if a murrain 
destroys many beasts, or a blight many fruit-trees, 
or a drought much corn : those whose beasts or 
crops have not suffered will gain extra from the 
rise of price that is the result of the calamity. 
Political events or sudden changes of fashion may 
also benefit some producers or traders and injure 
others quite unexpectedly. But the shrewd anti- 
cipation of future events and the prompt seizure of 
every opportunity of enrichment belong not to this 
head of differences, but to the first. 

(D) Trade secrets are another source of dif- 
ferences, not indeed such secrets as enable a kind of 
goods different from any other to be produced ; 
for then the extra gain would be due to monopoly 
and not be primarily the result of the price, but 
the cruise of it ; whereas the secrets that are 
the ground of differences are such as enable the 
Bame kind of goods to be produced which other 

pie produce, only in an easier way. Patented 
processes fall under this head, whereas patented 

not of differences, but of inono- 


This distinction is indeed no hard and fast line because, as 
we saw towards the end of the second chapter of this Book, 
there is no hard and fast line between what is and what is not 
a different kind of goods. The multitude of patent pocket- 
pencils or of patent mechanical toys can hardly each be called 
a separate kind of goods, and the patentee a monopolist. 

Observe that where a trade secret is such that some of the 
subordinates must have a knowledge of it, a portion of the 
extra gain may be absorbed in the extra wages to secure 
the fidelity of these subordinates. 

(E) The payment of lower wages than most 
others who produce for a common market is 
another ground of differences. Under many cir- 
cumstances — cases occur in England at the present 
day — some employers pay less than others. In 
London, for example, there is the greatest variety 
in the rates paid to women by city firms for 
making the same kind of tie. (Booth's London, 
vol. i. p. 415.) And when a common market is 
supplied from distant sources, there can be the most 
striking divergencies of wages, for example, in the 
case of the market for cotton-cloth in Bombay, 
where there is one price for similar goods, but very 
different private costs of production under the head 
of wages, according as the cloth has been made by 
the high paid operatives of Lancashire or by the low 
paid natives of Bombay. Often indeed low wages 
to the worker do not mean low wages from the 
master's standpoint, because of the worker's ineffi- 
ciency ; and vice versa. Only this and many other 
points on wages must wait for their proper place in 
the Third Book. 

(F) Another ground is the payment of less rent 
than others, whether in the shape of rent for definite 


objects like farms, shops, houses, machines, or of 
interest for a definite amount of indefinite goods 
reckoned in money. Now, among those whose 
goods come to the same market, there can be the 
greatest variety in their outlay on rent. For 
example, before the year 1881 there was great variety 
in farm rents in England and in Ireland on different 
estates, and all the while the low-rented farmer was 
getting just as high a price for his milk or cattle or 
grain as the high-rented farmer. Again the difficulty 
of Irish manufacturers competing in a common 
market with Scotch, has been attributed in part, and 
probably with justice, to the high interest the Irish 
have to pay compared with the easy terms granted 
by the bankers of Scotland. Again the ground-rents 
in many manufacturing towns in England are so 
high as to cause a movement of factories towards 
the suburbs or the country, leaving the centre of the 
towns to be occupied by shops and warehouses. 
Meanwhile the country and suburban manufacturers, 
though paying so much less rent than the urban 
manufacturers, receive in the common market 
exactly the same price as these do. 

This item of rent among the maker's or dealer's private 
costs of production, is liable to be affected by alterations in 
the exchange- value of money. If there is a general rise of 
,, that is, a depreciation of money, then the more property 
you hold at a fixed rent or interest, and for the Longer term, 
the more you gain ; and thus an e n trepr e neur who has borri i 

an advantage over those who have not borrowed; while 

just the 1 happens it there Is a general fall of prices, 

that is, an appreciation of money. 

(G) The law of increasing returns, that is, the 

iter return under certain circumstance:, to more 


elaborate and highly organized production (explained 
in the fourth chapter of the First Book), may enable 
some producers, notably large manufacturers, to 
gain a difference, where a number of other pro- 
ducers, notably small manufacturers, who supply 
the same market, have much less advantage from 
concerted labour and uninterrupted utilization of 
■fixed capital, and yet get not one farthing more for 
their goods. 

(H) The law of diminishing returns is so im- 
portant a cause of differences that it has made many 
writers forget the other causes. Those producers 
who occupy the more favoured spots, whether by 
fertility or situation, get the advantage of the 
difference between their costs and those of their 
less favoured co-producers for the same market. 
In agriculture these differences are very conspicuous, 
as every market for grain, or roots, or dairy produce, 
or beasts, or vegetable oil, or garden produce, is 
supplied from lands of different, often very different, 
advantages, and the common market price gives a 
difference to all except the least advantageous. 

In each case the particular market price of a particular 
kind of agricultural produce determines the difference each 
producer receives. If a rotation of crops is needful, the price 
of the whole series of the rotation, not of one item, is decisive. 
And clearly where a choice is possible, that particular crop 
or rotation will be chosen, of which the expected market price 
will give the greatest profit to the grower. But then some 
lands are only fit for one or two uses, like marsh lands only 
fit in India for rice and in England for pasture, or steep 
slopes only fit in England for timber and in Southern Europe 
for vines ; while some lands might yield more if devoted to 
some other purpose, but the cost of making the change would 
outweigh the benefit. In all such cases the price of other 
kinds of agricultural produce, such as of corn, may rise ; but 


unless the price of the particular produce of these fields 
rises, that other rise will not enable them to yield a greater 

The same principle applies to mines and fisheries 
when the produce is brought to the same market ; 
for the one market price gives very different returns 
according as the mine or fishery is, or is not, easy 
of access from the market, and abundant in its 

Observe that the condition of the means of com- 
munication is of peculiar importance in the case of 
the heavy, bulky, or perishable produce of agricul- 
ture, mining, and fishing. With a revolution in 
communications comes a revolution in the capacity 
of different lands, mines, and fisheries to supply 
particular markets, and a consequent shifting of 
differences among those who supply that market. 

In manufactures and commerce the law of 
diminishing returns is also the ground of many 
differences. Those factories and shops most favour- 
ably situated gain the difference over their less 
favoured fellow-dealers in the same market. The 
possession of a natural force like water-power may 
sometimes be the cause of the advantage. But the 
commonest is the being well placed for transport, 
whether for the fetching of raw materials, or for the 
sending out of finished goods, or for their reception 
and distribution in harbours, docks, warehouses, 
and shops. In this matter the variety in the pro- 
pacity of particular commercial or manu- 
undertakings is as striking as the variety 
in the productive capacity of particular farms or 


mines, and is in precisely the same manner a ground 
for differences. 

We must be careful to distinguish the high price of shops 
and warehouses in favourable situations for trade, from the 
high price of dwelling-houses in favourite situations for 
residence. The high price of the first is due to their being 
very advantageous means of production, enabling the owners 
to secure a large difference, and they are analogous to fertile 
or well-situated farms. The high price of the second is due 
to their being scarce objects of enjoyment (or consumption), 
enabling the owners to sell them for a scarcity price. In the 
second case there is no possibility of increasing the objects 
of enjoyment ; for the number of houses in a fashionable 
quarter are strictly limited, and hence there is a scarcity of 
them. But in the first case there is no scarcity of the means 
of production, for they can be indefinitely increased ; the new 
means of production often indeed may not be so advantageous 
as the old, like less fertile fields brought into cultivation, but 
still are new means of production. This being so, it is plain 
that the advantages of situation have a very different economic 
aspect according to whether the well-situated property is a 
means of production or an object of enjoyment. 

We have now sufficiently illustrated that notable 
effect of market prices, that they enable some 
dealers or producers to gain much more than 
others, because much higher costs than theirs 
have been effective in forcing up the market price. 
But there is yet one point of great importance to 
be noticed, namely, that most of these differences 
in the present state of society can be, as it is 
called, realized or capitalized ; that is, the productive 
advantage can be sold or leased to others, and the 
difference, instead of staying with the actual holder 
of the advantage, the farmer, mine-worker, manu- 
facturer, merchant, or retailer, passes away in the 
shape of interest on purchase-money or in rent of 
land or premises. A great portion of the wealth 


of the upper classes comes from the sale or lease of 
a profitable business, whether the profitableness 
was due to luck or skill, to a man's own hard work 
or to his hard usage of others, to profitable sharp 
practice or profitable generosity, to one's own 
exertions or another's. The best term to express 
this important phenomenon seems the realization of 

Naturally not every kind of difference is equally 
capable of realization. The sale or lease of business 
premises in towns and of agricultural land are the 
most conspicuous instances of capitalization, whereas 
the differences due to accidents and personal capa- 
cities are not directly capable of sale, though a 
good business connection can be, and frequently is, 
realized by the sale of the good-will. 

A short comment is here in place on the well-known 

passage of Adam Smith (Wealth of Nations, Bk. I. c. xi. 

ad init.): "High or low wages and profit are the cause of 

high or low price ; high or low rent is the effect of it." Now 

if he had said that prices have more influence on rents than 

rents on prices, that on the other hand prices have less 

influence on wages than wages on prices, and that finally 

profits in this respect are intermediate between rents and 

wages, his proposition might have stood ; but it cannot stand 

present shape. No doubt if we use the word rent merely 

in the sense of differences, the proposition, in what it affirms of 

rent, would in a manner be true. But Adam Smith does not 

use rent in this sense, and although many others have since 

it confusion results from such language. (Sec the 

of the next Book.) In the Ben •• in which rent 

tually used in common disco 

1 Eactoi in producing high prices. If English 
1 p their renl . and it the 1 hi >p 1 and « 

indon v. ■' w ould certainly 

No doubt the farmer and the traders would be 
able to 1 i\ pari of what the ownei b 

had surrendered, but not the whole; for the 1 


production being less, the market price of the produce would 
undoubtedly be lessened. 

The other part of the proposition, relating to wages and 
profits, is also untenable ; for high prices are not simply the 
result of high wages and high profits, but in part the cause, 
as the present chapter on differences ought to have made 
clear. This is more especially the case with profits, so that 
Professor Walker has gone so far as to use the word profits 
to mean certain kinds of differences, those, namely, that a 
manufacturer gets from his capacity, from trade secrets, or 
from production on a large scale ; and can then with perfect 
logic advance the proposition: "Profits do not form a part 
of the price of manufactured products." (Political Economy, 
p. 239. Third Edit.) I think this a misleading use of 
language, but not more misleading than that analogous use 
of the term rent. 



Let us begin by making clear what we mean when 
we speak of international ox foreign trade. The essence 
of such trade is to be the occasion of the passing 
of goods or persons over the frontiers of a country. 
The meaning of a country and a nation we have 
already seen (supra, p. 34), how the world is divided 
into different regions of considerable size, and 
separated in fact if not in law by considerable 
political distinctions. Every such region is a 
country, the inhabitants form a nation, and they 
desire or ought to desire that their country abound 
in riches and inhabitants, in strength and virtue. 

Now the difference between international trade 
and home trade is that in the home trade the net 
gain, fa r shared between different traders or 

purcha . . a national gain ; whereas in foreign 
trade this gain may go partly to foreigners, and it 
is possible, as we shall see, that the trade, if we 
on indirect effects, may be carried on at a 
national loss. Thus foreign trade may on the one 
hand iuch greater national gain than the 

home trade, and on th I hand DC DO n;it; 

gain at .-ill. And further, from it very nature, 


foreign trade is bound up with politics ; the mutual 
intercourse of traders makes known the manners 
of their countries, foreign tastes and fashions may 
follow foreign goods, and if such trade grow large, 
then whether for good or for evil, one country 
becomes bound up with the fortunes of another, 
and its national self-sufficiency is at an end. This 
then is the ground for making a distinction between 
home and foreign trade, namely the political ground. 
No other is valid. 

Pitfall. To imagine that there is anything but a political 
reason for separating international trade from other trade, 
and that prices in the two cases are not determined in the 
same way. This is a common mistake of classical Political 
Economists, and seems to have arisen as follows. The 
assumption of there being an equal rate of wages and profits, 
found in germ in Adam Smith, was developed by Ricardo, and 
made the foundation of a theory of prices. But the assumption 
was so obviously wrong if applied to two different countries 
like England and France, that for international trade a 
different theory of prices had to be constructed. So, while 
prices in the home trade were explained on the assumption 
that labour and capital within a country were perfectly fluid, 
like water in a basin, prices in the foreign trade were explained 
on the assumption that labour and capital never flowed from 
one country to another, no more than water from one basin 
into another. 

It is an improvement on these older theories when 
Mr. Sidgwick gives one common theory of price for home 
and foreign trade, provided the places trading are " distant." 
But then this theory lays too much stress on one element of 
cost, namely, that of bringing to market from a distance ; and 
assumes a local mobility of labour and capital that in reality 
does not exist. Let us assume nothing. 

What are the advantages that a country gains 
by foreign trade ? First, many useful things are 
brought into it that otherwise could not be obtained 
there, or but scantily ; for example, by means of 
foreign trade are brought into Great Britain gold 


and silver, tea and coffee, spices and wine, cotton 
and indigo, Oriental fabrics and porcelain. 

Secondly, by means of foreign trade many useful 
things are brought into a country that could be 
obtained there, but only at greater public cost of 
production than is expended on the goods sent 
abroad in exchange for them ; so, for example, 
timber and sugar, hides and wool, are imported 
into Great Britain. 

Thirdly, by means of foreign trade a greater 
concentration of labour and property in certain 
industries is rendered possible ; and the nation 
gains in consequence to a greater degree the advan- 
tages of more concerted labour, more localization of 
industry, more production on a large scale : the 
nature of which was duly explained in the First 

Of these three advantages of foreign or inter- 
national trade, the last two can be combined by 
saving, that such trade allows the resources of a 
country to be developed to the greatest advantage 
of the inhabitants. 

Adam Smith expresses this truth hy saying that the 
surplus produce of a country must be sent abroad for some- 
thing in demand at home, else such surplus would be of no 
vain*-, and booh cease to be produced. The industry for the 
; ictiou of this surplus is therefore encouraged by the 
hants who export the produce, and but for the 1 xport a 

com of opulence for W hieh it 

led. (Wealth of Nations, Bk. II. C. v.) 

uly, if thei 1 10 pur< h tton and 

al Bi it.-iin <.iii side the 1 (land, the 

ilatiou of thi 1 island would be much le 1 than 

lam Smith' fore, <>i the ne< d of 

oational produi <-. i< ems 
md to de m rib< alia immer* 

2 4 o EXCHANGE. 

cial nations, and the actual scramble for dependencies whose 
inhabitants may be made the purchasers of the manufactures 
of the ruling country. 

Pitfall. To say with Mill that a " country produces an 
exportable article in excess of its own wants ... as the 
cheapest mode of supplying itself with other things." {Political 
Economy, III. xvii. § 4.) For first, this view treats countries 
as though each were a person, producing, exporting, and 
supplying itself with goods, when really farmers and -manu- 
facturers, merchants and carriers, are those who do this, often 
with rival or contradictory interests, and sometimes with 
private interests in contradiction to the public weal. Secondly, 
it is assumed, in consequence of the foregoing fiction, that all 
international trade must bring advantage to the nation, as it 
would do if England, France, and Germany were each an 
individual with single aims, interests, and united intelligence : 
only they are not. Thirdly, one aspect only of international 
trade is put before us as the whole, and nothing is said of the 
turning to the utmost account of every source of wealth in a 
country, which international trade may promote ; no explana- 
tion is given of facts such as that to which the traveller, 
Mr. Wells, bears witness, of the apathetic, listless lives of 
many of the inhabitants of the interior of Brazil, simply from 
lack of a market for their surplus produce : they lack a 
stimulus for energy, and the great riches of the land lie 

The gains from international trade, whatever 
they may be, are distributed within the nation, but 
the manner of their distribution is very complicated, 
and it is very hard to tell who gets them. For the 
imports may be sold at market prices, monopoly 
prices, customary prices, or legal prices ; and the 
same price will give a different gain to almost. every 
dealer and almost every final consumer. We can only 
reckon roughly that the consumers of the particular 
merchandize imported, and the producers of the 
particular merchandize exported, and thirdly the 
carriers in and out, are those to whom foreign trade 
is of particular advantage. Looking at history we 
can also affirm that among the fruits of foreign 


trade, one of the greatest national importance has 
been the creation or promotion of bodies of wealthy,. 
energetic, and capable merchants, like the Han- 
seatic, Venetian, Dutch, and British. But any 
attempt to measure accurately the total national, 
gain from international trade is idle ; for that gain 
is mainly dependent on public costs of production,, 
and these costs, as we have already seen in the 
second chapter, refuse all precise measurements;, 
not to speak of the complications introduced by 
the possibility of misdirected consumption being, 
increased or lessened by international trade. 

In the last section of his Leading Principles, Cairnes justly 
lays stress on the impossibility of accurately measuring the gain 
on foreign trade, or the loss if it were cut off, the loss, for 
example, if our tea trade were cut off, and no more tea could 
be had in England for love or money. 

The proportion of the gain from international 
trade that falls to each nation can in like manner 
only be reckoned with great vagueness. No doubt 
where acute and eager traders of one nation deal 
with unorganized peasants or craftsmen of another, 
the lion's share of the gain will fall to the first 
nation. Much of the trade of Europeans with the 
natives of Africa, and some of Asia, is of this 
character. But where Greek meets Greek, for 
.;/.<:, in the trade between England, Holland, 
Belgium, Germany, France, and North America, it 
leems impossible to prove that any one ol them 
habitually gets more gain from their mutual trade 
than any other. 

• hat if thei 1 >l demand ' nlai 

arti'..' -1 warlike BtOTefl in America, when tin: Civil War 


broke out, the nations supplying those particular articles will 
get the best of the bargain ; and vice versa, if there is an 
unusually large offer of goods for export. But such cases, 
being occasional, not habitual, are no real exceptions to the 
rule. There is indeed a real exception in the case of a mono- 
poly. If a country is the sole producer of certain goods, it 
may levy a tax on foreigners by an export ditty, and habitually 
get the largest share of the gain. The fine kind of opium 
grown in India, and the tax on its export is a case in point. 
In the still more exceptional case of what has been called a 
consumer's monopoly, that is, where a particular article is only 
demanded by one country, the Government, by imposing an 
import duty, may levy a tax on foreigners, and the country 
habitually get the largest share of the gain. But in general 
we may apply Professor Bastable's dictum on import duties, 
to the whole matter of how the grain is divided between the 
trading nations (seeing the different interests of different 
classes of producers and consumers in different countries), 
and say, " Explanation is difficult, prediction well-nigh impos- 

Although from what has already been said, we 
should not expect the money price of imports to be 
always exactly the same as that of the exports, we 
might expect, taking one year with another, some 
approximation to equality. But we should be mis- 
taken ; for in fact we find great divergencies repeated 
year after year. The chief grounds for such diver- 
gencies are as follows : 

First, borrowing on the part of individuals, cor- 
porations, or the Government of one nation from 
the inhabitants of another. In such cases the prin- 
cipal of the loan goes out in the shape of exports, 
the interest comes back in the shape of imports. 
Hence, ceteris paribus, while the creditor country is 
lending, its exports exceed its imports, and vice versa, 
while it is receiving the interest or repayment ; and 
obviously the higher the interest, the greater the sub- 
sequent excess of imports into the creditor country. 


Secondly, remittances received by rich travellers 
or absentees from their property, as well as by 
those in fleets or armies abroad. In such cases 
the country where they are travelling, or domiciled, 
or stationed, receives imports without any exports 
to balance them. Under this head also must come 
donations such as the large sums sent by the Irish 
in America to Ireland. 

Thirdly, tribute from foreign countries, often 
veiled in modern times by taking the shape of 
salaries of the civil and military officers of the 
ruling country, paid out of taxes levied on a 
dependent country. Such income, as far as remitted 
home, gives the home country imports without any 
exports to balance them. A war indemnity acts in 
the same way. 

Fourthly, commissions, brokerage, freight, pilot- 
age, harbour dues, marine insurance, and other 
similar payments received from the inhabitants of 
other countries for commercial work done for them. 
Such payments ultimately take the form of the com- 
mercial country receiving imports with no exports 
to balance them. 

In recent years England is a classical example of a country 
1 t excess of imports under the fust and two last 

j 'rom inl , from tributes, and 

from commercial payments. Under tl ad head, Indeed, 

I int of English trav< Hers, 

many times 

outb the imports, 00 I of the immense 

1 ilv in I .ondon, who 

:111c from theii 1 our d< pendencies, 

r In land. 

mple ■ ' 
: : Kiit oi interest, oi tribute, 


and of commercial payments, under the first and the two last 
heads given above. 

The official statistics, both British and Indian, are unfor- 
tunately misleading, because the imports are reckoned plus 
the cost of carriage, but not the exports, which thus appear 
less in relation to the imports than they really are. Both 
ought to be reckoned either at the point of departure, or at 
the point of arrival ; otherwise the cost of carriage is reckoned 
for the one but not for the other. We must also remember 
that the returns of custom-houses cannot in any country be 
implicitly trusted, and in some countries are very delusive. 
If there are custom-duties, then there is a strong motive to 
understate quantity and value ; if no duties, then a likelihood 
of carelessness. And still greater is the variety in different 
countries of the amount of contraband imports and exports. 
Hence all figures of international trade are to be taken with 
great caution. 

Bankruptcy may affect imports and exports. If the law of 
a country is such as to make bankruptcy easy, a certain 
amount of foreign goods will be got hold of, that probably will 
never be paid for. Similarly, repudiation of debt by munici- 
palities, provinces, or states may alter the relations of exports 
to imports. Only remember that some loans have been made 
in such manner, that total or partial repudiation is a less evil 
and injustice than continuing to pay for them. 

The relation of imports and exports being thus complicated,, 
it is a mistake to say that the sum of exports pays for the sum 
of imports, or that there is a balance or equilibrium between 
them. For this proposition requires so many explanations to 
make it true that we are wiser not to make it at all. 

If we have rightly apprehended the nature of 
international trade and its advantages, the question 
of what is called free trade versus protection ought 
to be easily determined ; not indeed the question 
whether any particular country like Germany or 
New South Wales should adopt any particular 
policy, but the general principles which each can 
apply to the particular circumstances of his own 
country. Protection for the present purpose means 
the giving home producers an advantage over 
foreigners, either by taxing the foreign produce as 



it comes into the country, or by giving the home 
exporters a donation (a bounty) in addition to what 
they can earn commercially. 

Now the following are valid reasons for pro- 
tection, not anywhere, but wherever the conditions 
exist that render them applicable. 

First reason. If a country lacks certain industries 
for which it is physically suited, say the manufacture 
of woollen cloth, leather, and pottery, and is supplied 
with them from abroad, a protective duty levied on 
the importation of these goods will call into life 
the manufacture of them at home, and utilize the 
productive power of the country. True that the 
encouragement of these industries will be ipso facto 
a discouragement to the production of those goods, 
say oats, butter, and live cattle, that were exported 
to pay for the woollens, leather, and pottery. But 
our hypothesis is that the new industries are " suit- 
able." Hence the diversion of national industry will 
result in a larger net return after the first difficulties 
are got over, the workmen collected and trained, the 
kindred and auxiliary trades set up, industry properly 
localized, and on a scale large enough to allow the 
full application of concerted labour and the advan- 
I es of the law of increasing returns; moreover, 
a secure body of customers acquired (business 
connection), and the vis inertia: rolled away by the 
expectation of certain profit. All this being once 
accomplished, and who can say when without pro- 
tection it would have been accomplished, the new 
industries will give a gain much greater th;in the 
loss in the old industries. Fcr remember that only 


the less efficient and commercially weaker growers 
of oats, breeders of cattle and dairy farmers will be 
driven from the market, those who figured on the 
first table in the third chapter, as E, F, and G, but 
not A, B, and C. But this is not all : we must not 
reason as though a nation was an individual with 
strictly limited capacities of production and con- 
sumption ; for nations wax and wane in their 
numbers and wealth, and consequent powers of 
industry. Now protection in the case supposed is 
not unlikely to attract immigrants or to prevent 
emigration by affording a new and congenial occu- 
pation and a secure market. Hence there may be 
little or no discouragement of the old industry, but 
foreign artisans and manufacturers may come flock- 
ing in and take as their labourers and apprentices 
those who else would have found no employment at 

This first reason for protection, sometimes called the 
acclimatization or infant industry argument, is of irresistible 
force, always supposing the conditions observed that make it 
valid. And it is incidentally confirmed by the practice of 
nations, who, when politically able, have constantly adopted 
this method for their enrichment. 

The opposing argument often heard that protective duties 
once put on will never be taken off again, sounds strangely in 
England where this very thing has happened. The only 
real question is about the " fitness " of the industry that is 
absent or stunted ; and on this point no doubt, as it depends 
on particular matters of fact, there is room for abundance of 
discussion, and need of much local and technical knowledge. 
And the mere knowledge of physical geography is not enough ; 
for certain industries for which a country is not much favoured 
by nature, may yet be desirable and therefore " fit," in order 
to serve as a means of national, artistic, or intellectual develop- 
ment, and by giving a great variety of employment to allow 
none of the talents of the inhabitants to lie fallow. 


Second reason. If an existing industry, really 
suitable to a country, is threatened with ruin by 
foreign importations, it is plain from the foregoing 
reason that such industry should be protected : but 
not plain how such a case could occur. For vis 
inertia is here on the side of the home producers, 
the difficulties of change lie with the foreigner. Yet 
in two ways at least the case can occur. First 
through the action of misdirected consumption, 
explained in the First Book, by which good 
merchandize is driven out by bad, solid and suitable 
home goods may be supplanted to the public loss 
by flimsy, showy, unhealthy foreign goods, unsuited 
to the climate and circumstances ; and the increased 
exports of some other merchandize to pay for these 
new imports, is no adequate compensation, and the 
national industry is diverted from more to less 
advantageous production. Secondly, as Professor 
Sidgwick has pointed out, an extraordinary temporary 
advantage in production possessed by a foreign 
country may destroy or greatly injure a suitable 
home industry ; and then when that great advantage 
is past and gone, the cost of restoring the lost or 
lessened home industry, may far outweigh that 
previous gain of the cheap imports. 

Some think thai an instance of this is the injury to the 
iltivation of W< urope by the imports of v. I 

from the 11' ••'. land 1 of America cultivated exhau I 

that wK rt of cultivation 1 

cultivation must, the national co Is of reneu Lot the corn 1 
will 1 aational gain 1 tin ■ »ugh the low 

: Be this as may, \ 


Third reason. National safety may require the 
home production of all the requisites of warfare, and 
such measures as may avert the risk of an enemy 
being able, by shutting off the importation of food 
or some other necessary, to starve their opponents 
into submission. A similar preference for " con- 
sideration of power," over " consideration of plenty " 
<(to use Lord Bacon's phrase), is the ground for 
bounties on shipbuilding and the prohibition of 
■exportation or importation except in home vessels, 
in order that the number of the nation's sailors and 
ships shall be increased. Such navigation laws, 
like those in force for a century and a half in 
England, may be efficient where other nations have 
n.ot the power or the opportunity of doing the same. 
And undoubtedly if military experts tell us that 
some trade is requisite for our safety, and if such 
trade, as was said of the craft of bowiers in the 
Teign of Richard III., is "sore diminished and likely 
to be utterly undone " by the unrestrained operation of 
foreign trade, then some kind of protective laws are 
needed lest the land be thereby " greatly enfeebled 
to the great jeopardy of the same, and the great 
comfort of the enemies and adversaries thereof." 
(Cunningham, Industry and Commerce., p. 389.) Only 
military experts sometimes make mistakes. 

Fourth reason. Social harmony is a good of 
incalculable value : its injury is among other things 
one of the greatest injuries to national wealth. Now 
*inder certain circumstances protection may be 
needed to prevent changes in the national industry 
and a consequent break up of a happy and 


harmonious constitution. A secure and steady 
market may be essential to an organized industry 
and to the proper insurance of the poorer classes. 
Hence the apparent loss by the exclusion of foreign 
goods may be outweighed by the real gain of 
steady habits, sober profits, and mutual good-will. 

In like manner it is the duty of all nations to introduce 
this much of protection, that wherever it is seen that the low 
prices of certain goods are due in great measure to their being 
produced by miserably underpaid workpeople — that they are 
the fruits of " sweated " labour — then the importation of such 
goods should be checked by a high duty, lest this unnatural 
and iniquitous cheapness be fostered abroad and imitated at 

The Germans have the credit of a special word for a 
protective duty under this fourth head, namely ein sozialer 

If none of the four reasons for protection are 
present in a particular country, then the unrestrained 
freedom of importation and exportation has a strong 
presumption in its favour. And where there is 
protection, it ought to extend only as far as these 
reasons justify it, and no farther. Hence to protect 
two or three industries and not all or many, is not 
by any means necessarily an illogical half-measure, 
but may be common sense. Common sense also 
tells us that a small country, especially one like 
Denmark or Holland lacking variety in soil, will 
find it hard to gain the advantages of protection ; 
that small countries however may gain some of 
these advantages by joining a Zollvercin or customs 
union ; and that the larger the area under the 
same protective duties, and the Dearer its shape 
approaches a circle, the shorter proportionately will 
be the frontier to be guarded, the less costly the 


enforcement of the duties. Finally, from the nature 
of the four reasons given above, it is plain that 
whether the circumstances justifying protection are 
present or absent, depends on the state of civiliza- 
tion and on the moral qualities of the inhabitants, 
as much as on the physical condition of the land. 

Pitfalls. To say boldly and absolutely that free trade is 
good or bad, or that protection is good or bad, without 
making any distinction of circumstances ; or to argue that 
because protection is injurious, let us say in the United States, 
therefore it is injurious everywhere; or that because it has 
done good, let us say to Germany, therefore it will do good 

But it may reasonably be asked why, if the matter of free 
trade and protection is so simple, it has aroused such lengthy 
and embittered controversy, not merely among traders whose 
strong personal interests will account for any mistakes in their 
reasonings, but also among calm and impartial economists. 
The answer is perhaps as follows. The classical economists 
were imperfectly aware of the principle of increasing returns, 
of the principle of misdirected consumption, and of the 
antagonism of national interests; they were dazzled by the 
example of England, the great centre of wealth and trade, 
the economic model in all eyes for some three-quarters of the 
nineteenth century, and a country precisely at that time 
singularly adapted for free trade ; and they tacitly applied 
the conditions of England to all other countries. No wonder 
then, assuming what they assumed, and ignoring what they 
ignored, that every Protectionist appeared to them very like 
a fool or a knave. After which it was difficult for the Pro- 
tectionists to be very calm in their answer or very clear. 
Remember besides that as the practical application of free 
trade or protection turns on particular matters of fact, which 
are often disputable, there is plenty of room for dispute. 

So much on this great debate between free trade and 
protection. Further questions of international trade, in par- 
ticular the foreign exchanges and commercial crises, will be 
discussed more conveniently after we understand the nature 
and use of money, to which we now turn. 



The word barter means the direct exchange of one 
article for another without the interposition of a 
third. But there cannot be much exchange in this 
way so great are the difficulties, first to find a man 
who has got to spare just what you want and who 
wants just what you have got to spare ; and then 
this absence of double coincidence in barter (to use 
Jevons' phrase), becomes more inconvenient when 
articles, as a horse, a waggon, or a garment, cannot 
be divided, and when, as eggs or fruit, they will not 
keep : your eggs will go bad before you have col- 
lected enough to pay for a waggon. If then there 
is to be much exchanging, if there is to be any 
market as described in a previous chapter, people 
must agree on a medium of exchange, that is, some 
one article which every one will take ; and if this 
iium is divisible without loss and is durable, like 
pieces of copper, the convenience afforded is in- 
creased. You can now exchange your eggs for 
COppef by the dozen or half-dozen as your fowls lay 
them, and when yon have collected enough copper, 
you can buy the waggon you are in need of. Further, 
such a medium of exchange can serve, and generally 


does serve another purpose, namely, that of a 

measure of exchange-value, enabling us to express the 

exchange-value of eggs and waggons or anything 

else, by comparing them with the pieces of copper, 

or with whatever is chosen as the measure, and to 

say that a dozen eggs cost two pieces and that a 

waggon costs two hundred pieces. Exchange-value 

thus expressed by a measure is called price, and the 

convenience of such measurement immense ; for 

" it is easier to ascertain and remember the relations 

of many things to one thing, than their innumerable 

cross relations with one another." (Mill.) Thus if 

ioo articles are exchanged, including among them 

the measure of value, we have only 99 relations to 

keep in our heads, namely, the 99 prices ; but 

without such common measure no less than 4,950 


The medium of exchange and the measure of exchange- 
value need not indeed be the same article. Thus in Denmark 
after agriculture had succeeded nomad life, they used corn as 
a medium of exchange, but the measure of value was cattle ; 
later on a ton of barley served as the measure and metals as 
a medium. Commonly, however, the measure of exchange- 
value is either the one or the chief medium of exchange, or 
at least one among several. 

If what has been said on a medium of exchange 
and a measure of exchange-value is clear, we ought 
to be able to construct a clear definition of money, 
and to distinguish it from the terms currency and 
legal tender. 

Money is any exchangeable good which is both a 
medium of exchange and a measure of exchange- 

Currency is any medium of exchange which is 

MONEY. 253 

current in a certain region, that is to say, which 
freely circulates there — which as a rule every one 
there will take in exchange. 

Legal tender is any medium of exchange which 
every one must by law take in exchange unless he 
has previously made a special arrangement to the 
contrary with the other party to any contract. 

According to these definitions the bank-notes of 
a local banker in an English country town are 
currency, for every one there will take them ; but 
they are not legal tender or real money. In the 
same town a note of the Bank of England is both 
currency and legal tender, for if a man owes me five 
pounds I cannot refuse such a note in payment ; 
but such a note is not real money, for it does not 
serve as a real measure of exchange-value. Lastly, 
in the same town a gold sovereign is both currency, 
and legal tender, and real money. 

According also to these definitions we must never 
use the phrase "paper money," which is almost a 
contradiction in terms. Promises are not the same 
as performance, and the proper phrase is paper 
currency ; and if we are bent upon applying the word 
money to paper, at least let us always add that it is 
only nominal not real money. So too we must not, 
when we are speaking the language of economic 
science, use such phrases as " he lost all his money 
in speculation," or " he sunk a deal of money on his 
land/' or " he would not borrow till money got 
cheaper:" we ought rather to say he lost all his 
property, sunk a deal of capital, would not borrow 
till loanable capital was offered at less interest. 


It may be objected that the foregoing definition of money 
is much narrower than those commonly found in the writings 
of economists, of those, I mean, who, like Professor Sidgwick 
in his excellent chapter on the definition of money, have 
taken pains to be clear. But I think that the recent dis- 
cussions on bimetallism show the need for writers on 
economics to practise a self-denying ordinance, and adopt 
the narrowest possible definition of the word money so as to 
give the least possible occasion for making mistakes. The 
next best course is to adopt the widest possible definition, 
and to make money mean every sort of medium of exchange, 
as well as all property easily turned into a medium of 
exchange, all wealth namely which is easy to be realized. 
Consequently money would include all property like shares, 
bonds, and other securities, which can be sold quickly and 
without depreciation, as distinct from land, mines, factories, 
machinery, stocks of materials or even of finished goods. 
Professor Walker adopts an intermediate definition, and 
makes money much the same as what I have called currency, 
by defining it as " that which passes freely from hand to hand 
throughout the community in final discharge of debts and 
full payment for commodities." Professor Sidgwick slightly 
widens this definition so as to include payment by cheques, 
and thus puts the words " from owner to owner " instead of 
" from hand to hand." But these, as well as all the other 
intermediate definitions, between the very broad and the 
very narrow, seem to me somewhat arbitrary, and above all 
to fail to give us the help we need in threading our way 
through the thorny maze of currency and credit. 

A great variety of goods in different times and 
places have been used for money ; they may be 
grouped under three heads : 

(i) Cattle, among pastoral nations and those 
with rude agriculture. In such societies domestic 
animals were the chief form of wealth, every one 
could feed them on the common pastures, one beast 
was pretty much as good as another, and they could 
be moved very easily. Cattle, therefore, was a 
suitable kind of money, and could be supplemented 
by a currency of wool or skins for small payments. 
Many of the great nations of the world have had 

MONEY. 255 

at one time money of this kind, for example the 
Romans, whose word for money (pecunia) records 
the use of cattle-money. 

(2) Miscellaneous goods, such as corn, salt, 
cubes of tea, dates, codfish, nuts, sugar, tobacco, 
skins, shells, ivory, even slaves ; all which kinds of 
money have been in use chiefly among rude nations 
or colonists reduced to a simple life. 

(3) Metals, more especially copper, silver, and 
gold, now universal in all civilized countries, though 
not confined to civilization. They have been adopted 
because pieces of them are durable, divisible without 
injury, easily carried about, easily stamped and 
recognized, all of the same quality, in general use 
for utensils and adornment, of great value in small 
bulk, and comparatively steady in their exchange- 

They are not perfect indeed : copper is too bulky except for 
small payments, silver too bulky for large payments, even 
gold inconveniently heavy for the vast payments of modern 
commerce, and this is one of the reasons for a paper currency. 
On the other hand, gold is not bulky enough for small pay- 
ments : the size of a gold penny, even of a gold shilling, would 
be ridiculously small; hence the need of supplementing gold 
money by a currency of silver and copper. Besides the 
tals, if pure, wear away and must thus be alloyed 
■with ardei metal, which brings a risk of deception and 

the : autions against falsified money. We are in 

ring in payment a counterfeit sovereign; but 
early Romans, with their cattle currency, were In no 
er of 1 counterfeit ox. Above all, although 

liable to alter in 1 ■■.< hange-value than most other things, 
lis do alter, and thi thai the measure 0! value 

• which, shall 1 oon Bee, bi inj many 

with it. Still nothing bette] than goldorsilvei appears 

be found to 



The imperfection of gold and silver that they vary in 
exchange-value is sometimes expressed by saying that they 
form an imperfect standard of value or standard of deferred 
payments. But what is meant by this has already been 
sufficiently expressed by saying that they form an imperfect 
measure of value, inasmuch as one great use of measures, 
whether of length, weight, capacity or exchange-value, is to 
enable us to deal with the future and make contracts for the 

Let us now make sure of a difficult point, how 
is the exchange-value of money settled, that is, let us 
ask, not how relative prices are settled, but how 
absolute prices are settled. Thus if in a price list 
we read for example that one article is worth 4s., 
another 8s., a third 12s., we want to know, not 
why the prices of the three articles are to each 
other as one, two and three, but why precisely 
they are 4s., 8s., and 12s., and not rather 2s., 4s., 
and 6s., or again 8s., 16s., and 24s. 

Before going any further, let us be on our guard lest we 
stumble and fall on this dangerous road. 

Pitfall. To speak in general of " the price of money," or 
to speak in any particular country of "the price" of the 
particular article (be it gold, silver, or anything else) that 
has there been chosen as the measure of value. For to speak 
thus is at best mere tautology, like saying a yard is three feet 
long, or that a pig is worth itself. So the phrase often heard 
in the City of London that "the mint price of gold is 
£3 175. io^d. an ounce," is a technical term of trade and 
coining, but quite unfit for economists to use. For a measure 
cannot be measured ; and the phrase in the mouth of an 
economist merely means that £3 17s. io^d. is worth 
£3 175. io^d. But we may speak in England quite correctly 
of the price of silver, and say that it has fallen in the last 
eighteen years ; for silver is not money with us, gold alone 
being our measure of exchange-value. So the price of 
silver can be quoted as correctly by an economist as the 
price of iron or coal. But go to India, where the measure of 
value is not gold but silver, and if you there say that the 
price of silver has fallen, you are saying the absurdity that 
an ounce of silver is worth less silver than formerly. To 



speak sense in India, you must say that the price of gold has 
risen. Whether the exchange-value of silver in India has 
fallen, is another matter ; 50 silver rupees will, it is true, 
purchase only § of the amount of gold they could formerly ; 
but then we must know the prices of hundreds of different 
kinds of goods, not merely of one kind, before we can say 
whether the exchange-value of money has fallen, or what 
means the same thing, whether prices in general or absolute 
prices have risen. As a fact, some people say that at present 
prices have not risen in India, and that taking one thing with 
another, you can get as much for your rupee as ever you 
could. At any rate it is certain that* if there has been a rise 
of general prices in India, it is nothing to compare with the 
rise there in the price of gold. 

Gold and silver being practically the only two 
kinds of real money that concern us, let us confine 
our attention to them. Now it is true that in the 
gold and silver market the same principles prevail 
as in other markets, and that the exchange-value of 
the precious metals is influenced directly by supply 
and demand, and indirectly by private costs of 
production and by value in private use. This is 
true, but to say no more would greatly mislead us ; 
for in the case of money there are peculiarities 
about the supply and demand, the costs and the 
uses, which ought to be specified. Let them be 
specified under capital letters as follows : 

(A) There is extreme variety in the costs of pro- 
duction of the precious metals; for sometimes they 
can be obtained with the utmost ease, sometimes 
'juire elaborate machinery and deep mines; 
and hence the differences between tin- gains of the 

nt prod extren 

B It follows that on the priii' iple of a lottei 
most be a total net I I • the sub- 
scribers taken as a whole, the production of gold 



and silver may be carried on at a total national loss, 
the gains of some not being enough to outbalance 
the losses of others. This has been reckoned to 
happen in the production of silver in the United 

(C) Adornments and plate made of gold or silver 
can be converted into money with great ease. Hence 
where vast amounts of the precious metals are in use 
for ornament, they may serve as a vast supply of 
money in time of war or revolution, as among the 
Greeks under Alexander, when the long-accumulated 
treasures of the temples of Asia were plundered, and 
a great fall in the exchange-value of money was the 
consequence. On the other hand, the existence of 
large amounts of gold and silver in a non-monetary 
form is a security against a sudden scarcity of 
money and against a sudden great rise in its 

(D) When used for anything else except money, 
a certain definite quantity of the precious metals is 
required, on the same principle that a certain 
definite quantity of leather is required for shoes. 
But if used for money, then it is not quantity but 
value that is required. Thus for a gold watch, 
necklace, or goblet, a certain number of grains or 
ounces of gold is required, just the same whatever 
the value of gold ; but for the purchase of food, 
clothes, and fuel, no definite number of grains or 
ounces of gold is required, but more or less just 
according to the value of gold. Hence, whereas a 
lessening of the cost of gold plate, just like a 
lessening of the cost of tea, or boots, or coal, is 

MONEY. 259 

pro tanto a national gain, a lessening of the cost of 
money is in itself no gain whatsoever. It only 
means that we must carry about in our pockets a 
heavier weight. 

(E) The oftener money changes hands in a given 
time, that is, the greater the rapidity of circulation, 
the less of it is wanted to do the same business. 

A classical illustration is from the siege of 
Tournay, in 1745, where the commander having 
money enough for only one week's pay, paid the 
soldiers regularly for seven weeks by borrowing the 
coins every week from the inns where the soldiers 
had spent them. If the circulation had been in any 
way less rapid, and the coins had remained more 
than a few days in the pockets of the commander, 
or of the soldiers, or of the innkeepers, more 
money would have been required to effect the 
given business. 

This being so, we can affirm the following pro- 
position, that the quantity of money required by any 
country depends on three factors, the exchange- 
value of money, the amount of money payments, 
and the rapidity of circulation ; that the higher the 
age-value of money, the fewer the money pay- 
ments, the quicker the circulation, the less money 
will be Deeded, and vice versa. 

Apart from any variation in the value of money the annua] 

mount of m enl is any country vary Un- 

ly with ciri . Where payment of rents, 

even ly in kind, w hei 1 I he h >usc« 

holds of the rich are provided with food from theii own 

the inhabitants are mainly 1 lad is home made 

much fewei 1 quired than in ;i 

untry 1H • I d land 1 dow, w I in 


kind are a rare exception, and where food and clothing are 
mostly bought. But if on the one hand commerce requires 
more money because of more payments, on the other hand it 
requires less because of the constant employment of substi- 
tutes for money such as token coins, paper currency, bills of 
exchange, cheques, and book credits. How these work will 
be seen in another chapter ; but in proportion as they are 
efficient they lessen the amount of real money required. 
Again, in a commercial State so many more people having to 
make payments, there will be so many more people who must 
keep stores of money to meet their engagements; but then, on 
the other hand, by the use of banks these private stores can 
shrink almost to nothing. Thus opposite forces are at work 
as commerce grows, and whether we are using more or less 
real money a head than some years ago is not easy to decide. 

Pitfall. To mix up under a common name these substitutes 
for money with real money, and thus to confuse two opposite 
influences on prices : increase in the use of these substitutes 
lessening the quantity of money required, and tending to raise 
prices by lowering the exchange-value of money ; and on the 
other hand, increase in the use of real money increasing the 
quantity required, and tending to lower prices by raising 
the exchange-value of money. As a result of such confusion 
we have columns in the newspapers devoted to the question : 
" Does quantity of money affect prices ? " A little care about 
the meaning of words is what is needed to keep out of the fog. 

In England gold is the only money, silver being no 
measure of value, and indeed only a token coin, a shilling if 
melted down being not worth half its nominal price of one 
twentieth of a pound. The great modern demand for coin to 
pay wages and railway fares is mostly demand for silver coins, 
and the increased use of gold for these purposes is probably 
outbalanced by the decreased use of gold among the richer 
classes, almost all of whom have now an account at a banker's 
instead of a reserve of gold at home, and who make all large 
payments by cheque. 

The rapidity of circulation is presumably greater in towns 
and densely peopled regions and where means of communi- 
cation are good, than where population is scanty and 
scattered, with few opportunities of meeting. Apart from 
this, the rapidity of circulation is affected by whether pay- 
ments are made in few or many instalments ; the more 
frequent the instalments the more rapid the circulation ; 
whereas if payments of large rents, dividends, or salaries are 
made at rare intervals, a large sum has to be collected and 
lie idle for some time. 

MONEY. 261 

Observe that the line between the monetary and non- 
monetary use of gold or silver is, like many other lines, not 
quite easy to draw. Money kept as a reserve or even buried 
as a hoard, is still money, because at any moment it can at 
the will of the owner be brought into circulation ; for being 
current coin every one will take it. But if kept back so long 
that it cease to be current coin, it ceases to be money, 
properly speaking, being no longer a medium of exchange, 
but having the character of gold plate or bullion. 

(F) There remains one more peculiarity about 
money to be specified, namely, that the demand for 
it can be almost wholly annihilated by the action of 
Government substituting some other currency in its 
place, and thus making an end of real money pay- 
ments. This can be done, because what men 
require in order to pay their debts is legal tender, 
not necessarily money. Hence if in a country with 
a gold currency like ours the Government issue 
tokens in the shape of paper tickets or base metal 
counters, and such a ticket or counter, having one 
pound stamped on it, can legally serve to pay debts 
of one pound, these tokens will become current, as 
no creditor can refuse them, and they are used by 
the Government itself in all its vast payments and 
purchases. But they will not merely become current 
alongside of the gold ; they will drive the gold out 
of use in the following manner. This gold pre- 

. sly was sufficient for all payments and reserves ; 
but now that there are the tokens as well as the 
gold, thore is too much of the medium of exchange 

to do the work if this medium remain of the same 
, before ; hen< e both the gold and 

the • will sink in ex< hange-value, that is, a 

will follow, till tli<- gold -ind 


tokens together exchange for no more than pre- 
viously the gold alone. Or rather, this process will 
begin, that is, prices in general will begin to rise ; 
but then it becomes instantly profitable to take the 
gold out of the country ; for abroad it is as valuable 
as before, at home it is becoming less valuable every 
day. Consequently, as much gold will go out of 
circulation and out of the country as the nominal 
value of the token currency that comes into circula- 
tion. And if the Government go on issuing the 
tokens, the gold will go on flowing out, till a sover- 
eign of full weight can only be seen as a curiosity. 
What will happen if even then more token currency 
is issued, is a very important matter, but does not 
belong to the present chapter, which has only to do 
with money, and not with that kind of currency 
which is not money. 

The case we have been supposing is one example 
of the principle that if there are two mediums of 
exchange circulating together of unrestricted legal 
tender, and one of them has a higher denomination 
than the other, which means that by law or custom 
it is overvalued in relation to the other, then this 
overvalued medium will drive out the other. This 
principle is commonly called Gresham's law, after a 
sixteenth century writer, though it was well explained 
two centuries before him. It can be expressed in 
the formula, easy to be remembered, that inferior 
currency drives out superior, but superior currency 
cannot drive out inferior. Only be careful to 
use the word currency and not money in this 

MONEY. 263 

The case we supposed above is very simple, whereas in 
reality there may be complications, such as difficulties in the 
exportation of gold, or a similar process going on in neigh- 
bouring countries. Still gold is so easily exportable that 
prohibitions cannot keep it in for very long when there is 
great profit in taking it out. Indeed, there may be no need 
of taking it out of the country, but only of melting it and 
making it into plate and adornments. For as the exchange- 
value of gold falls, the demand for it as the raw material of 
decorative work will presumably increase. 

From all that has been said above we must be 
impressed with the great complication of causes 
that in any locality determine the exchange-value of 
money, or in other words, determine absolute as 
distinct from relative prices ; and we must be pre- 
pared to find questions of money surrounded by 
many confusions of language and thought. 

Pitfalls. (1) To think the more money in a country the 
better ; when in reality it is no otherwise than with hats : the 
country should have enough hats for the heads, plus a reason- 
able reserve and no more ; and enough money for the money 
payments, plus a reasonable reserve and no more. 

(2) To think money has no intrinsic value, but is merely a 
counter or ticket ; when really it cannot be money and serve 
as a measure of value, unless it have value : we might as well 
take for our measure of length an imaginary yard, corres- 
ponding to no definite portion of space. 

(3) To say that money is a commodity like any other 
commodity, and that its exchange-value is determined like 
any other exchange-value; when in fact, as we have seen, 
though it is a commodity, that is, an exchangeable material 
good, it is a unique commodity, sui generis, quite unlike all 

One point remains to be explained, whether, 
namely, it is of much consequence, if the exchange- 
value of money suffers great and rapid changes, in 
other words, if there are great rises and falls of 
ab olute prio . Now the level of absolute pii' 

whether you get much or Little for .1 a, is 


in itself of little consequence ; for if you have to 
pay more for everything in the one case, you receive 
more for everything in exactly the same proportion. 
It is otherwise with changes in the level ; for 
although it is a mistake to think untold calamity 
and national ruin can result from a revolution in 
prices, it still may be a serious calamity, because it 
causes great masses of wealth to be shifted from 
one set of people to another without any idleness or 
misconduct of the losers, and without any industry 
or merit of the gainers. And thus, to keep prices 
steady should be among the aims of every good 

The case where absolute prices rise and the 
exchange-value of money falls is called a depreciation 
of money. All lose who have to receive a fixed money 
salary, all annuitants, pensioners, and such creditors 
as cannot call in their loans. Government, if there 
is a national debt, gains on the debt, but then loses 
on many taxes, as tolls, fees of court, postage, and 
such excise, custom, or stamp duties as are not 
ad valorem, but exact the same payment for a given 
weight or number of goods without regard to their 
value, and for certain transfers of property without 
regard to the amount transferred. On the other 
hand, those gain who have to pay fixed sums. 
And just the opposite to all this happens if there 
is an appreciation of money, namely, if absolute prices 
fall and the exchange-value of money rises. 

Observe that who are to be the gainers and losers greatly 
depends on the particular circumstances of the country. Thus 
.the nature of the public revenue in the seventeenth century 

MONEY. 265 

was of such a kind that the depreciation of money was a cause 
of constant financial difficulty to the Government, and one 
occasion of the civil war. A depreciation is likely to injure 
the poorer classes in the case where many of them live by 
wages ; for a rise of wages is only too likely to lag behind a 
rise of prices. In general the speculative and trading classes, 
the merchants and manufacturers who have such a powerful 
influence on public opinion, are those who most profit by 
depreciation, having less opportunity for gain in a time of 
appreciation ; which time is one of peculiar trial to indebted 
landowners. But as so much depends on the special laws and 
circumstances of each country, little profit is to be got from 

The more rapid the change the worse ; for besides the 
idleness or discontent due to many salaries being now either 
too small or too great, the spirit of gambling is brought into 
commerce, and since sure and steady gains are impossible, 
men are tempted to every folly. Hence come misdirected 
production and misdirected consumption, and thus a sudden 
revolution in prices brings not only a great shifting of wealth, 
but a considerable loss of wealth. 



If metals are used as a medium of exchange, there 
is an obvious convenience in our not being obliged 
at every exchange to test their quality and measure 
their quantity. Hence the use of coins, which are 
pieces so marked as to certify both the fineness and 
the weight of the metal. 

In China, till quite recently, the only coinage was a copper 
currency much too heavy for travellers to carry in any large 
quantity ; they had in consequence to use pieces of silver, and 
to suffer much delay, vexation, and often extortion in getting 
this silver weighed and assayed. 

The standard unit of value, or simply, the standard, 
means a particular quantity and quality of the 
merchandize adopted as the measure of exchange- 
value ; if this merchandize is gold or silver, then 
the standard is a certain weight and fineness of the 
metal ; and without such a unit no measurement of 
value would be possible. In England this standard 
unit is the sovereign, containing 123*27447 grains of 
gold of the fineness of eleven parts of pure gold to 
one of alloy. 

As a consequence, a troy ounce of gold is coined into 
3*89375 sovereigns, or £3 175. io^d. And just the same 
principle applies to all other units, whether the French gold 


franc, the German gold mark, the Indian silver rupee, or the 
Mexican silver dollar. Observe it is not necessary that the 
standard unit should be exactly represented by any coin. It 
is so in England and India, but not in Germany or France. 
In the technical process of coining it is impossible to avoid a 
slight variation in weight and fineness, called " tolerance " in 
France, and " remedy " among ourselves. But the variation 
is so small as not to make much practical difference. 

In every country every coin and every other 
medium of exchange must be referred to the 
standard if we are to know their value. Thus a 
shilling means the twentieth part of a gold sovereign, 
a penny the two hundred and fortieth part ; a 
napoleon in France means twenty gold francs ; a 
pfennig in Germany means the hundredth part of 
a gold mark ; an anna in India means the sixteenth 
part of a silver rupee. And the relation which a 
coin professes to bear to the standard is called the 
denomination of the coin. Hence an important 
distinction of two kinds of coin, standard and token 

Standard coins are those whose denomination is 
really in accord with their material and weight. 
Thus among ourselves a well-preserved sovereign 
and half-sovereign are standard coins. They profess 
to be, respectively, one and one half of the standard 
unit of value ; and they are. 

Token coins are those whose denomination is not 

really in accord with their material or weight ; they 

lacking in fineness or weight, or both, and they 

. ■ -ii be of another metal than the standard. 

theleSS their exchange-value may keep as high 

as their denomination, becau e they can be 

at law for what they profess to be, not for 


what they are ; that is, they can be exchanged for 
as much standard coin as corresponds with the 
marks on their faces, not with the composition of 
their bodies. Thus the denomination of our English 
shilling is the twentieth part of a sovereign, and 
twenty shillings will buy exactly as much as one 
sovereign, though the metal in them is really 
worth only three-quarters of a sovereign, if as 

The shillings, moreover, would buy just as much as they do 
if they had in them only half the silver they actually have ; nay, 
even if they were mere bits of paper with the word shilling 
written on them. For their value does not depend on their 
being metal, but upon their being counters or tickets ; and a 
paper ticket is about as good as a metal ticket. In fact such 
paper tickets, in the shape of bank-notes, are current among 
us ; and thus our English currency is composed partly of real 
money, namely, the standard gold coins, partly by tokens ; 
these tokens being divisible into token coins, with ingredients 
worth less than their denomination, and bank-notes with 
ingredients worth next to nothing at all. The ingredients of 
the bronze coinage are further removed in value from the 
denomination of the coin than that of the silver coinage ; for 
the metal of the two hundred and forty pennies, instead of 
being worth a sovereign, are barely worth a quarter of a 
sovereign. It should be observed that standard coins, when 
they get much worn and defaced, become assimilated to token 

The use of token coins among ourselves is to 
provide convenient currency for small payments. 
A gold shilling would be much too small for con- 
venient use, and a gold penny would be like a pin's 
head. Even were silver the standard, silver pence 
would slip through the fingers, and silver farthings 
would need a pill box to hold them. If, on the 
other hand, copper was adopted as the standard, 
any large payment would require the use of a cart, 


unless, as would certainly happen, some other 
currency were used as a supplement. This might 
either be a token currency like paper notes for vast 
sums of copper, or might be a goods currency, that 
is to say, some merchandize like silver might be 
used as the common medium of exchange for all 
large payments, the amount paid depending on 
the market price of the merchandize at the time. 

Thus in the vast and busily trading Empire of 
China, till quite lately, the standard of exchange- 
value has been copper, and the only coinage a 
copper one ; while for making large payments or 
carrying large sums there has been both a token 
currency of bank-notes and a goods currency of 
silver bullion. 

An incidental use of token coins is that they give a profit 
to those who are able to get them into circulation ; and this 
profit will be greater in proportion as their denomination 
exceeds the exchange-value of their ingredients, or as this is 
sometimes expressed, in proportion as their nominal value 
exceeds their metallic value. 

From this and from what has been said before, it appears 
that the issue of token coins is likely to be among the proper 
functions of a reasonable Government. But in such issue 
there is need for the Government to observe three precau- 
tions. First, the ingredients of the token coins must be of 
less value than their denomination; else it would be the 
interest of every one to melt them. For if the silver contained 
ty shillings were of greater exchange-value than one 
q, then in the shape of shillings they would only 
• for one sovereign, but in the Bhape of silver bullion 
they would 1 Tones a and something more. 

.//;.', the ingredients of the token coins must not b* 

value so much less than their denomination as to cau 
violent temptation to false coining, in the case of copper, 
Indeed, the temptation I a ma 

in ordei to mal 1 enough 

to be worth the puni hm< at. Bui if our 1 ilv< 1 1 oin 1 

ontained eax h only three pennyworth oi silver, i 


coiners could scarce be withheld even by the utmost terrors 
of the law. No doubt there is a still greater profit by 
counterfeiting bank-notes ; but the technical difficulties of 
imitation and the risk of detection are greater, and thus the 
temptation is less. Thirdly, and chiefly, there must be a 
limit put to the quantity of token coins in circulation ; else 
they will take the place of the standard coins, and finally, by 
the operation of Gresham's law (described in the previous 
chapter), will drive them out of circulation. To prevent this 
a simple means is to limit the amount for which token coin 
is legal tender; thus our English silver tokens are legal tender 
only for forty shillings, and our bronze tokens only for one 

In minting both token and standard coins, care should 
be taken against the triple danger of coins being counter- 
feited, abraded, or maltreated. Counterfeiting is least where 
the design of the coin requires elaborate machinery. Abrasion, 
or wearing away by lawful use, is least in the case of large 
coins with a design in low relief and of a material hardened 
by alloy. Maltreatment, such as clipping the edges or drilling 
holes in the body of the coins, is least where these coins are 
not very large, and where the design is on the edges as well 
as on the flat surface. 

These technical details are of serious importance, lest by 
neglecting them we allow a degradation of the coinage, that is, 
where most of the coins are so worn or damaged as to be 
below their proper weight. When this is common, the last 
holders of light coin often suffer great hardship when they 
have to make payments to Government offices where coin is 
weighed. Also the more the coins are defaced, the more 
temptation to continue the practice of defacement ; whereas 
with a coinage generally good it is not easy to pass a very 
worn coin. Worst of all, as these light coins in so large a 
multitude of dealings are in fact, though not by strict law, 
legal tender, the standard unit of value becomes lowered, 
money being depreciated to the extent of the average degra- 
dation of the standard coin. And the evil tends to perpetuate 
itself and grow worse. For by the operation of Gresham's 
law, the worn coinage drives out the unworn ; speculators 
collect and melt down the new coins, whose value as coins is 
less than their value as metal, because in common circulation 
they cannot be distinguished from other coins ; and the 
operations of the mint become in Adam Smith's famous 
phrase (Bk. IV. c. vi.), like the web of Penelope. 

Even where the coinage is not degraded the melting down 
and export of coins can occur if gold is required for exporta- 
tion ; and the cost of coinage is thus altogether wasted. To 


prevent this evil in both cases, there is need of a seignorage 
(or mintage), that is, a charge in some form or other for 
coining. Then the coins under ordinary circumstances will 
have an exchange-value greater by the amount of such 
charge than the mass of uncoined or melted metal of equal 
weight and fineness with that in the coins ; and there would 
only be loss, not gain, in melting them down. 

The attempt to raise a large revenue by seignorage, and 
to make a charge for coining far above the costs, would fail 
because of the immense encouragement this would give to 
counterfeit coining and to the use of substitutes for coin. 
But to make a charge, at least equivalent to the cost of 
coining, appears the reasonable course ; else gold coin is 
artificially undervalued, nothing being allowed for workman- 
ship ; and besides the risk of the coins being melted, more of 
them are required for a given amount of exchanges, which is 
a waste, small indeed but needless, of national resources. 

The profit made on the issue of token coins and paper 
currency is sometimes spoken of as a seignorage, and the 
amount of the profit on paper currency expressed as being a 
seignorage of 100 per cent. But although this language 
has two great authorities on money, Ricardo and Professor 
Walker, to support it, and can be so explained as to be true, 
nevertheless it seems misleading, and liable to obscure the 
line between token and standard currency. For whereas 
genuine seignorage raises the exchange-value of standard 
coin, adding the item of workmanship to the items of material 
and weight, the exchange-value of token currency, whether 
coins or paper, has no relation to their workmanship, any 
more than to their material or weight, but simply depends on 
their denomination, that is, on their relation fixed by law to 
the standard unit of value. 

In England there is nominally no seignorage, every one 
being supposed to be able to get coin at the rate of 
£3 17s. lo^d. for every ounce of gold he takes to the mint, 
thus to get the coin gratis. But, in fact, every owner 
of bullion who wishes coin, takes his gold to the bank of 
England (which in this matter is virtually a Government 
office), and gets back coin at charges, all told, amounting to 
about \ per cent., preferring to pay this than to suffer t Ik* 
delay tl. would follow and the loss of into re -1 before he 

m from the mint. So we have a seignorage 

I not in name. 

At the end of the last chapter we saw the evils 
of either a depreciation or appreciation of money, 


that is, a change downward or a change upwards in 
the exchange-value of money, a fall or a rise in 
absolute prices. But a far worse evil is the artificial 
change in the value of the currency by the sinister 
device of debasement of the currency, that is, when 
rulers lower the standard unit of value. This has 
been done in three ways : first, by adulteration, that 
is, by keeping the same weight of metal as the 
standard unit of value, but mixing more alloy with 
it : a " treacherous fraud," as Adam Smith has 
called it. Secondly, by augmentation, that is, by 
raising the denomination of the coins, calling pieces 
of smaller size and weight by the same name that 
the larger and heavier pieces used to bear. This 
"injustice of open violence" has often been practised; 
pounds English and pounds Scot were once alike, 
but while the English pound shrank to one-third of 
its ancient weight, the Scotch shrank to one-thirty- 
sixth, causing the distinction between the two 
pounds familiar to the readers of Walter Scott ; 
and in France the shrinkage of the livre was to one- 
sixty-sixth of its ancient weight. Thirdly, by a 
method suitable to our own commercial age, the 
same evil end has been reached by over-issue, 
that is, by the issue of inconvertible paper currency 
beyond what is sufficient to replace the standard 
coinage driven out. But before explaining this 
modern form of debasement, let us look at the use 
of a Government paper currency, and then we shall 
better understand the abuse. 

I say " Government" paper currency, because this alone 
can be over-issued (in the strict sense), and not private paper 


like private bank-notes, bills of exchange, cheques, or other 
paper instruments, which as a fact do circulate freely in 
certain districts and thus are genuine currency. What is 
needful to be said of such private paper will be said in the 
next chapter ; at present our business is only with Govern- 
ment paper. 

Now what is the motive that induces any Govern- 
ment to fill the country with paper ? It is this, 
that wherever a currency of standard coins is in 
use, and the conditions of trade and society are like 
those of modern Europe and America, it is possible 
for a Government to take well-nigh the whole 
amount of that currency for its own ends, and be 
richer by all that vast sum, while no one else is any 
the poorer. For example, the English Government 
might pay all its domestic creditors and all its 
soldiers and civil servants, not in gold coin or in 
orders that might be exchanged for gold coin at 
some public office, and therefore to be called con- 
vertible paper, but in State notes of one pound or 
ten shillings, and might declare these notes to be 
legal tender, without undertaking to give coin in 
exchange for them. They would then be what is 
called an inconvertible paper currency, known abroad by 
the suggestive term of forced currency (cours force), 
and often spoken of both at home and abroad, but 
not correctly, as paper money. For brevity such 
DOt es can he called inconvertible paper; and nothing 
r than their issue. For so vast arc the pay- 
ments which modern Governments have to make, 
that their notes can be put into circulation with the 
utm nd in a year or two at most the 

hundred million or thereabouts of our standard 


coinage would, by the action of Gresham's law, be 
entirely exported or melted down if inconvertible 
paper to the amount of a hundred millions or there- 
abouts had been issued. 

Remember this is a modem resource, implying great pay- 
ments in currency by Government and elaborate credit 
contracts. But if a Government supported itself from its 
own estates, and received most of its revenues and paid most 
of its servants in corn or cattle ; and if most exchanges in 
the country were for cash over the counter : then it might 
be very difficult for a Government to induce any one to take 
its notes. 

So far, it may be said, so good ; the Government 
has been enriched and no one else any the worse ; 
nay, every one the better ; for nothing is so con- 
venient as notes, so easy to carry, to stow away, to 
make large payments with ; and last not least, as 
notes can be and ought to be numbered, each can 
be identified, unlike coins, and thus a great security 
be given against theft. 

Unhappily shadows creep over this bright picture. 
First, as no one can eat his cake and yet keep it, so 
when once the standard coin is gone, the Govern- 
ment cannot profit a second time by substituting 
paper in its place. And if to meet a sudden emer- 
gency a Government has expelled the standard coin, 
it should as soon as possible begin to issue a fresh 
coinage, so as to accumulate a fresh reserve for 
future troubles. But too often, instead of stopping 
the issue of notes when all the standard coin is 
gone, Governments have continued the issue, with 
results exactly the same as if they had adulterated 
the coinage or raised the denomination of coins. 
For now the paper in circulation being in excess 


of the amount required for payments in paper, the 
value of this paper will fall in some proportion to 
the excess. A paper sovereign will now no longer 
buy so much as it used to ; in other words, the 
standard unit of value has been lowered, and there 
is debasement of the currency, as in the previous 
cases of adulteration and augmentation. The name 
for debasement in this third case — for this excess 
of inconvertible paper — is over-issue. 

Strictly speaking, we must not say in this case that money 
is depreciated, because there is no money : it is all gone. 
The paper stuff is the medium of exchange, but no measure 
of value. The measure of value continues to be gold (or 
silver, as the case may be), but no longer the same amount 
of gold. If the over-issue were in England, for example, the 
standard unit of value called a pound would no longer be 
i2j-27 grains of gold, but a fluctuating quantity to be reckoned 
by the amount of gold that a paper pound would purchase. 
Hence, if there was an over-issue to the amount of double the 
quantity of notes required, and if the currency was depre- 
ciated in proportion, the standard unit of value would have 
shrunk to about 61 '63 grains of gold. This would be ex- 
>ed commercially by saying the premium or agio on gold 
was 100 per cent. 

Theoretically, token coins could be over-issued in the same 

manner as paper notes. But I do not know that this has 

ever been done; the temptation to counterfeit coining would 

be intense; and the use of paper is much quicker, easier, and 

;/er for a Government in distress. So, although the 

• t over-issue is applicable to all tokens, wc may look 

:cally as confined to paper currency. 

An over-issue produces all the effects of a great 
fall in the exchange-value of money or a general 
of prices, only intensified, because so sudden ; 
and i-, one of the most detestable robberies under 
form of law that has disgraced our age, quite as 
bad as the- older forms of deba iement winch wen 

i I , . tly denouno d by the i cholastic 



economists. And when once a considerable over- 
issue is in existence, then, although no more notes 
are issued beyond replacing those lost or worn out, 
still, political events, such as the likelihood of a 
standard coinage being brought in again (sometimes 
called resumption of cash payments), may cause the 
exchange-value of the paper to fluctuate immensely, 
and reduce much of wholesale trade to a mere 

A classical example of such fluctuation is that of the 
United States during and after the civil war. The premium 
on gold compared with the inconvertible paper, called green- 
backs, varied as follows : 


Highest premium 
Lowest premium . 









7 2 2 



































Highest premium 
Lowest premium . 

The banker, Mr. Edgcombe, relates how in 1886, in Brazil, 
his notes, worth £6 when he set out on a journey, were worth 
when after two months he came back, £8, because the 
premium on gold had fallen so much in the brief interval. 
More recently a striking example of over-issue has been seen 
in Argentina, the premium on gold rising within three or four 
years from little or nothing to over 200 per cent. 

No doubt if a Government stopped issuing in- 
convertible paper the moment there was the smallest 
premium on gold, that is, as soon as a paper note 
for one pound could only buy nineteen shillings 
eleven pence half-penny worth of gold, all serious 
depreciation of the currency would be avoided. In 
fact this was done to a great extent by the English 
Government during the Napoleonic wars, and by 


the French Government after 1870, and is known 
as the gold par method of regulating a paper currency. 
But the temptation to over-issue is so great that the 
abuse of inconvertible paper is more likely than 
the use, as far as present experience shows, and 
such paper should only be resorted to on an emer- 
gency, and got rid of when the emergency is over. 
But no emergency justifies an over-issue : forced 
loans, though a more violent, are a more honest 

The temptation to over-issue is increased because many 
Governments are more or less under the influence of great 
merchants and speculators, who can make enormous profits 
by each rise in the premium on gold. And traders, as a rule, 
are not averse to a general rise of prices, which is likely to 
lay a burden on the steady, rural, and working classes, not 
on the speculative and distributive. 

When there has been an over-issue, the very difficult and 
delicate question may arise whether in going back to a 
standard coinage, the standard should be what it was before 
the over-issue and before the consequent depreciation of the 
currency, or whether it should be lowered in some propor- 
tion to the depreciation ; for example, in the case previously 
supposed for England of the premium on gold reaching 100 
per cent., whether the new gold sovereign of the restored 
standard coinage should contain the original 123 grains of 
gold, or only 61 grains to correspond with the exchange-value 
of the existing currency, or something intermediate between 
these two extreme points. If the depreciation has been 
very great, as in the case supposed, and if it has lasted for 
many years, then to bring back the old standard is to cause 
a fresh revolution in prices, and to commit a new injustice 
too tardy to remedy the old. In other cases much is to be 
oa either side, and so much depends on the particular 
social conditions of each country, that a general answer would 
only mislead us. 

Pitfall* To think that there can be no over-issue if the 

. 1:1. e the French Revolutionary astignais^ are "based on 

."that is, if the Government hold property of value 

equivalent to the □ ued. For it is not the wealth and 

• .• Government, but the quantity of notes in 

ilation, that determines whether they are depreciated or 


not. And thus the vast resources at the disposal of the 
United States Government in the year 1866, when the civil 
war had been triumphantly ended, did not hinder the 
premium on gold from being 25 to 67 per cent. 

Before closing this chapter, there is one matter 
to be cleared up relating, not to token coinage or 
paper currency, but to standard coinage. We have 
all along been supposing in existence only a single 
standard unit of value, often known as monometallism; 
but in fact a double standard or bimetallism has often 
been adopted, namely, a given weight and fineness 
both of gold and silver. This implies two things : 
first, that a relation be fixed by law between the 
two metals, that the ounce of fine gold be to the 
ounce of fine silver as (for example) 15^ to one ; 
and secondly, that both silver and gold be legal 
tender in unlimited amounts. The difficulty is to 
maintain a double standard except in name; for if 
the relation between the two metals is not originally 
fixed by law at the same figure as prevails in the 
metal market, or if originally the same, it becomes 
different in course of time by not following the 
changes of the market : then by the operation of 
Gresham's law, the overvalued metal drives out the 
undervalued, all payments come to be made in one 
metal, and there is practically a single standard. 

Thus in England in the period 1717 — 1774? although 
nominally a double standard prevailed, yet as silver was 
undervalued and gold overvalued, gold drove out silver, only 
the worn and clipped silver coins remaining in circulation. 
In France, after the gold discoveries of Australia and 
California had lessened the value of gold, the gold keeping 
the same legal relation to silver was found to be overvalued, 
and so there also silver was to a great extent supplanted by 
gold, which had previously had only a limited circulation, 


and this, not at the legal ratio, but at a premium. And when 
after the German War, by a fresh alteration in the market 
relation of the metals, silver became the overvalued metal, 
the gold was on the point of being driven out of France, 
only the Government intervened and virtually suspended 

Many economists in view of such facts have 
too hastily maintained that only a single standard 
is reasonable. In doing so they make two assump- 
tions, first, that serious changes in the costs or uses 
of one of the two metals are likely to occur without 
similar changes in the other ; and secondly, that 
there can be no international accord on the matter. 
But we may just as well assume just the contrary, 
that such changes will not occur, and that such an 
accord will be made. And then if the British 
Empire, the United States, the Latin Monetary 
Union, Germany and Holland, all formed together 
a bimetallic union, agreeing on a double standard, 
say, that an ounce of gold should be to an ounce of 
silver as 19 to one for evermore, what then would 
happen ? If when the relation was fixed the market 
relation was also 19 to one, prices and incomes 
would not be affected, at least for the moment, as is 
obvious. The various countries of the bimetallic 
union would have their standard coins of gold and 
silver, and their reserves of gold and silver bullion 
just as they required; and there would be the 
immediate blessing for all traders and travellers of 
what would be to a great extent an international 
coinage. Indeed, one of the advantages of a hiim 1 allic 

union would be th< of establishing an Inter- 

national coinage among them. But then supposing, 


as time went on, that gold-mining became rather 
harder or silver-mining rather easier, would not 
<jreshanvs law come into play, and turn all the 
members of the bimetallic union into monometallic 
countries with silver as the one coin ? By no 
means : for although the law would come into play, 
it would only cause rather more silver to be used in 
the bimetallic union, and rather less gold. For in 
so vast a population as that comprised within the 
limits of the union, a very slight increase in the 
-demand for silver and a very slight slackening of 
the demand for gold, would rapidly cause silver to 
conform again to its former relation to gold. A 
little more silver would be in use proportionately to 
the gold in use, and that would be all. In this way 
would be attained the great aim and advantage of 
bimetallism, that prices would remain much steadier 
than under monometallism, because the costs or 
uses of two metals, instead of the costs or uses 
of only one metal, would have to be seriously 
affected before a revolution in prices could follow. 
Also the uncertainty of profits in the present trade 
•between countries with a gold and countries with a 
silver standard, with the injury to honest and sober 
merchants, and the encouragement to rash specula- 
tions, would be at an end. 

But if the thing is so simple and advantageous, 
why is it not done ? And why is there such dis- 
tressing violence in the discussion ? This is because 
the interests of different nations, classes, and persons, 
are at variance. There is first the fact that the rise 
of the exchange-value of gold in recent years is a 


gain to England in general as a great creditor 

country receiving interest reckoned in gold from 

half the world, and a gain in particular to the 

bankers and financial houses of London as the 

holders of innumerable mortgages. On the other 

hand, such debtor countries as have to pay in gold 

the interest of their debts, and the debtor classes 

of the United Kingdom, notably the landowners, 

suffer by the fall of prices. But still more violent 

becomes the conflict of interest when the question 

is reached of the relation between the two metals 

to be fixed by law. The old relation was 15J of 

silver to one of gold ; but in less than twenty years, 

gold rose or silver fell in exchange-value so greatly 

that the market relation by 1890 was 21 to one (and 

notwithstanding the American Silver Act of that 

year, is now in the autumn of 1891 as about 2of to 

one). Now it is not the wish of most bimetallists 

to stereotype this new relation of silver to gold, 

brought about mainly, they contend, by the arbitrary 

action of Governments, such as the substitution of 

gold for silver as the chief currency of Germany, 

after the French War, and the closing of the French 

mint in 1873 to the unlimited coinage of silver. But 

then to fix any other relation than the existing 

market relation, is denounced by the monometallists 

as robbery; to which the others reply that it is not 

robbery but restitution. Evidently the question is 

delicate, and to come to an agreement is difficult. 

Pitfalls. To say it is absurd for Governments to try <-m<l 

fix th<: relation between sold and silver, .'is this must depend 

on their relative co ts of production, which do Government 

date. J 1 double fallacy, first Id supposing that 


money is perfectly like any other commodity, and secondly in 
supposing that exchange-value depends only on costs, as 
though uses had no effect ; whereas precisely in this case the 
agreement of Governments exercises a gigantic influence on 
the use of money, especially on the relative use of the two 
kinds of metal. 

Some writers have proposed as much more effective than 
bimetallism to secure an unvarying standard of value, the 
plan known as an index number or a multiple or tabular standard 
of value. Government officials by calculations from informa- 
tion from all markets, would reckon first of all how great the 
purchasing power (or exchange-value) of money was, and 
would express it by a figure, say ioo. Then at intervals 
several times a year they would renew the calculation and 
publish the result as 101 or 102, or more, if absolute prices 
had fallen, and as 99 or 98 or less, if absolute prices had 
risen. All debts, wages, and salaries would be paid with a 
diminution or an addition according as the index number 
was above or below what it had been at the time of the 
contract that originated them. 

This ingenious plan is unpractical : to work it properly, 
all men, all merchandize, and all places ought to be alike ; 
whereas in reality many prices are not market prices at all ; 
the e are great varieties even in market prices according to 
different localities ; we ought to reckon not only the propor- 
tionate but also the total prices paid by each family, lest we 
absurdly make a fall of 10 per cent, in the price of pepper a 
compensation for a rise of 10 per cent, in the price of bread ; 
and as different articles are consumed by different classes of 
society, and different proportions of the same article, prices 
really may have simultaneously fallen for the rich and risen 
for the poor, or vice versa. All this makes it impossible to fix 
a true index number even for a country so uniform and so 
small as England ; many different districts and many different 
classes of people would need a different figure ; and if we 
could imagine the superhuman powers able to ascertain the 
right figures, who would guarantee the needful impartiality, 
and secure us against the abuse of so tremendous a power in 
the hands of Government. So a multiple standard if it were 
compulsory would be an oppression, if voluntary then 

Professor Cunningham has pointed out how the rents in 
kind in the old Saxon times, whereby for deferred payments 
a curious variety of commodities was given, answered the 
purpose of an unvarying standard of value ; and gives a case 
of a rent in bread, oxen, sheep, pigs, bacon, cheese, and 
three kinds of malt liquor. {Industry and Commerce, p. in.) 



We have now seen the nature of money, of coin 
both standard and token, and of inconvertible paper 
currency ; but still we have not seen enough as yet 
to explain modern trade ; since much the greater 
part of this trade in our own country and a large 
part of it in many countries is carried on without 
any money, coins, or inconvertible paper being used 
at all. We see trade conducted on a vast system of 
borrowing and lending, of circulating written claims 
and debts, of cancelling one claim and one debt 
against another; and whether we praise this system 
of commercial credit, or condemn it, of this there is 
no doubt, that not a quarter of modern trade could 
have come into existence, or could go on existing, 
without it. 

But first, what is credit? Putting aside the 
vague, popular, and wide meanings of the term, let 
us use it in the strict and narrow sense to mean 
agreed postponement of payments in currency. 
( lit in this sense arises in two ways : first, when 
curi - >r an order for it, has been lent; secondly, 

ii goods have been received and by consent have 
not been paid for. In the first case there is a 


formal loan, in the second case a virtual loan. This 
second case of credit has as its opposite what we 
may call cash-payment ; using the word cash to mean 
both currency and orders convertible into currency 
within a very short time. 

In common language the word cash has no precise 
meaning, and even in the technical language of commerce 
its meaning is not uniform. When denned as above, the 
word enables us to express with brevity and clearness two 
opposite kinds of business transactions, as credit transactions, 
on the one hand, and cash payments on the other. The 
phrase ready money means in ordinary conversation whatever 
cash may mean, but is a phrase out of place in economics. 

Pitfall. To discuss in general the blessings or the evils 
of credit. We might as reasonably discuss in general the 
blessings or the evils of water, good because of washing, but 
bad because of drowning. The only reasonable discussion 
is concerning particular sorts of credit under particular 

Commercial credit is where the formal or virtual 
loans that constitute credit are among traders for 
the sake of trade- 
Now as the focus or centre of commercial credit 
is to be found in banks, let us examine the chief 
functions of all kinds of banks, and make our way, 
as best we can, through the labyrinth of confused 
opinions and technical terms that surround them. 

The origin of the word bank seems to be an old 
Teutonic word meaning a heap, or common stock, 
or fund. Let us take it to mean a collection or 
store, not of common goods, but of bullion, or coins, 
or non-metallic currency, or valuable titles, claims, 
and obligations. The manager of such a collection 
is a banker. 

In this wide and general sense the word bank includes 
various kinds of business called by various names, such as 


banks of deposit, banks of issue, banks of remittance, land 
banks, credit mobilier, loan banks, people's banks, savings 
banks, monts de piete, firms of bill-brokers, of exchange-brokers 
or cambists, of stock-jobbers, of pawnbrokers, of money- 
lenders. No doubt in London the term banker is generally- 
confined to a narrow class of lenders of high and deserved 
repute. But this makes it all the more necessary in economic 
science for the term to be used in a wide sense, lest the 
student think that all givers of credit are of the high position 
and character of London bankers. 

Pitfall. To say that banking is trading in money. For 
this is to take a part, often a very insignificant part of a 
banker's work, as the whole, and leads us absurdly to 
exaggerate the importance of the stock of money or bullion 
in the country. 

The following have been the chief functions of 
banks in the wide sense of the term, some banks 
undertaking one function only, some several, some 
almost all. 

First function. To receive in deposit specific 
goods, in particular bullion and gold and silver coin. 
The deposit remains in the bank, and the identical 
coin, or bullion, or other specific article is given 
back to the depositor when he has no occasion to 
keep it longer at the bank. This function was 
formerly of greater relative importance than now. 

Second function. To receive in deposit, keep safe, 
and deliver up when required or after due notice, 
not specific goods, but generic or fungible goods, such, 
namely, as are to be restored, not by giving back 
identical object deposited, but by giving back 
its equivalent in quantity and quality. Cash and 
claims for cash are conspicuous among the generic 
deposited with haul.-; and this function 
of bankers includes their acting to .1 Certain extent 
as collector.-, of debts, in particular, presenting (as 


the phrase is) bills and drafts when they become 
due, and saving thereby a world of trouble to 
traders. Moreover, under this function comes the 
collection of small savings, chiefly done by a special 
kind of bank known as savings banks. 

Third function. To make payments and transfer 
debts for their depositors. Thus in the eighteenth 
century, two merchants, each having a deposit of 
bullion at the Bank of Hamburg, could transfer 
bullion from the one to the other without the least 
risk or trouble by a simple alteration in the bank 
books. But an analogous saving of time and trouble 
can be made where the deposits are not specific 
but generic ; and in England this practice has 
spread marvellously. Almost every trader above 
the pettiest and poorest, and almost every non- 
trader with any accumulated wealth, keeps a deposit 
with a banker, and makes all large payments by 
what is called drawing a cheque, that is, by giving 
a written order to their banker to pay. And observe 
that only a small proportion of these cheques are 
actually paid by the banker in gold or currency ; 
for most receivers of cheques have also a banker of 
their own to whom they send the cheques, and then, 
if he is also the banker of the drawer of the cheque, 
all he has to do is to alter the figures in his books, 
not to make any payment. Even if the drawer and 
receiver of the cheque have, as is most likely, 
different bankers, there is little difference in the 
result. For representatives of all the bankers in a 
neighbourhood meet constantly at a clearing-house, 
and there all the cheques and bills of exchange each 


banker has to pay are set off against those he has to 
receive, and only the balance paid in currency. In 
this way sums that seem fabulous are paid without 
any gold being used. 

In the great London clearing house, debts to the value of 
from five to six thousand million pounds are thus settled 
every year without a single sovereign being used. The very 
balances are not paid in currency, but in cheques on one 
central bank (the Bank of England), where all the other 
bankers keep an account. If per impossibile all that vast 
business could be done without the intervention of cheques 
and bills, the annual charge on the country for the gold to 
effect it would probably not be less than fifty million pounds. 

Observe that the principle of clearing is only an extension 
of what is called book-credit, that is, where two dealers each 
require the other's goods, instead of paying at each transac- 
tion, they allow one debt to cancel the other, and only settle 
at intervals the balance between them. A great saving of 
currency and of trouble is thus affected. 

Clearing has been extended in England to railways, who 
have a railway clearing-house in London, where all the cross 
claims of different companies on each other from through 
bookings of goods and passengers, are cancelled one by the 
other, and only the balance paid. 

Fourth function. To lend cash on pledge, that is, 

re the borrower makes a specific deposit. Much 

uncommercial credit is in this form, and will be 

examined in another chapter. An example of a 

commercial form of such credit is where a bank 

rices cash to a trader on the security of a dock 

warrant, this being a receipt for goods deposited 

dock-warehouse, and entitling the holder of the 

to the ownership of the goods. 
Fifth function. To lend cash on mortgage, that 
n the security of ^p<< ific property that remains 
1 the hand of the creditor, but in the hand 

btor. Loans to landowners, mine-own 
1 tmpanie i, and oth< r a -<< ial ion > holding 


fixed property, are instances of this function of 
banks, provided always that the fixed property is 
pledged for the repayment. This function like the 
fourth is conspicuous in uncommercial credit. Of 
commercial credit in this form an example is seen 
in the loans made to needy shipowners on the 
security of their vessel. 

Sixth function. To lend cash on personal security. 
This is the most conspicuous function of modern 
banks in England and Scotland, and is done in 
various ways, by far the most important being 
discounting bills of exchange. A bill of exchange in 
general terms may be described as a written order 
by a creditor on his debtor to pay a specified sum 
at a specified time and place to some third party, 
or to any one to whom that third party may have 
transferred the bill. Historically they present three 
features, first, a previous and genuine business trans- 
action between the two parties, the " debtor having 
really received goods from the creditor ; secondly, 
the introduction of a specified third party at some 
distant place ; thirdly, the capacity of being trans- 
ferred from one person to another, each person 
signing the bill before he transfers it, and by his 
signature becoming a security for its payment when 

It follows that the bill must, as the technical term is, 
become due, that is, be payable, in a comparatively short 
time, seldom longer than six months and generally three. 
The average duration of bills discounted at the Bank of 
England is not more than sixty-eight days. Some of the 
technical terms relating to bills of exchange are as follows : 
the creditor who writes the order is called the drawer, the 
debtor is the drawee, and after he has signed the bill, the 


acceptor ; the person in whose favour it is drawn is the remitter; 
the person actually in possession of it is the holder ; all who 
have had it and have passed it on by signing it, are the 
endorsers ; and the bill from its legal capacity of being thus- 
transferred, is said to be negotiable. 

In modern times in many countries the law has rendered 
unnecessary the first two features of bills of exchange, and 
has thus assimilated them to promissory notes, that is, transfer- 
able promises to pay at a fixed time and place. But although 
the law may have ceased to frown on those bills of exchange 
which are founded on no genuine transaction, and are called 
accommodation bills, prudent bankers refuse to look on them 
with favour. 

Bills of exchange are a very ancient contrivance,, 
and their great use in old times was to save the risk 
and cost of conveying coin or bullion from one place 
to another. Instead of a waggon-load of silver 
going from London to York to pay the creditors in 
York, and passing on the way another waggon 
going from York to London to pay the creditors 
in London, this double transfer was avoided by 
sending bills of exchange drawn by the York creditors 
on their London debtors in favour of the London 
creditors, and vice versa. No silver had to be sent 
except as much as was wanted to pay the balance if 
the total debts on one side exceeded the total debts, 
on the other. 

In trading with foreign and distant places this 
use of bills of exchange has still some importance. 
But within England they are chiefly employed as 
a convenient method by which bankers lend and 
traders borrow. In most wholesale trade, bills are 
drawn by wholesale dealers upon shopkeepers and 
by manufacturers upon wholesale dealers, and the 
holders of these bills, instead of waiting for the Cash 
till the bills become due, take them instead to thei r 


bankers, and receive cash for the amount of each 
bill, less a certain deduction called discount, which 
varies according to the demand for such advances, 
the supply of funds suitable for making them, and 
the personal character of the parties to the bill. 
The market rate of discount is that actually charged 
by the bankers in a given city in cases where the 
parties are sound and well-known traders. Where, 
as in London, and many other cities, there is a 
bank connected with Government, the bank rate 
means the discount charged to creditable traders by 
the Government bank. 

Pitfall. To be confused by the expressions unfortunately 
used as technical terms by London traders. The aggregate 
of all bankers and others who discount bills of exchange, and 
of all traders who are seeking to get bills discounted, is called 
the " money market," though scarce a coin is used in all this 
business ; and worse still, the market rate of discount is called 
the " value of money." Hence people get to think there is a 
scarcity of gold or currency when discount is high, whereas 
in reality there is abundance of gold, but scarcity of goods, 
traders being more in need of loans, or bankers having less 
deposits to lend. 

Besides discounting bills of exchange, bankers can lend 
cash on personal security in other ways ; for example, allow- 
ing their depositors to overdraw their accounts, a not unfre- 
quent practice in England, especially in country banking ; or 
they may credit a trader with an imaginary account on which 
he can draw, as is done in Scotland by those cash credits 
described by Adam Smith. {Wealth of Nations, Bk. II. c. ii.) 

Observe that where a banker holds large sums deposited 
on call, that is, where the depositors can take them out with- 
out notice, he can only safely make loans for short periods ; 
else, if an unexpected number of depositors simultaneously 
wish to withdraw their deposits, he may find that he cannot, 
as he is bound to, pay them then and there, because some 
time must elapse before he can get back their deposits, which 
he has lent for a long term. Hence English bankers who hold 
such large sums on call, are very eager to lend for the short 
periods implied in discounting bills of exchange, and some- 
times charge as little as two per cent, or even less as discount. 


Seventh function. To exchange currency for bullion, 
bullion for currency, one form of currency for another, 
bills payable in one place for bills payable in another. 
In former centuries, when coins were used by traders 
far more frequently in proportion than at present, 
when Europe had a great multitude of mints, and 
when there was great variety in the goodness of 
different coins, the function known as " money- 
changing " was of great importance. In our own 
times it is by comparison insignificant ; but, on the 
other hand, the business of dealing in claims, 
particularly bills of exchange, payable in distant 
places, has grown to a great size in every com- 
mercial city ; and these transactions called in their 
aggregate the exchanges, or by rather a misnomer the 
foreign exchanges, have their grounds as follows : 

A merchant who has to make currency payments 
in a distant place, say Calcutta or Sydney, wishes to 
find at home another merchant to whom payments 
have to be made in Calcutta or Sydney, and to buy 
his claims ; and the other merchant wishes to sell 
them ; because the one merchant will then no longer 
have to send silver, gold, or merchandize convertible 
into the currency of Calcutta or Sydney, and the 
other merchant will no longer have to fetch silver, 
gold, or merchandize. The cost to each of respec- 
tively sending and fetching is the limit to what the 
one party will pay beyond the nominal value of his 
bill of exchange, and to what the other party will 
allow to be deducted from that value. Where the 
price between these two extremes will rest, depends 
immediately on supply and demand ; for there is a 


market for such claims conducted by bankers or 
similar intermediaries as in London mainly by those 
who are called bill-brokers. All that can be said in 
general is that in proportion as a city is a creditor- 
city, habitually receiving more than it sends out, 
for example, London, the exchanges will be what is 
called in its favour, that is to say, more of the 
inhabitants of Calcutta, Sydney, and other towns 
will have bills to pay in London than to receive in 

Complications. First distinguish real from nominal ex- 
changes. Real exchanges are due to more being payable 
in one place than in another ; but nominal exchanges are the 
expression of the currency of one country in that of another. 
This is only possible where the same metal is used as the 
standard ; thus the gold in an English sovereign equals the 
gold in 25 francs 20 centimes, and this relation of the franc 
and the sovereign is called the par of exchange. If in the trade 
between London and Paris more is due to be paid in London 
than in Paris, bills on London will be bought in Paris for 
more than 25 francs 20 centimes per sovereign, and the 
exchange is said to he favourable to London, unfavourable to 
Paris. In Paris bills on London will be at a premium : in 
London bills on Paris will be at a discount. Parisians who 
have to receive in London, gain ; and Parisians who have to 
pay in London, lose ; and conversely with Londoners. So 
the term favourable is liable to mislead us. 

But between places using different metals as their standard, 
or, as in the case of an inconvertible and overissued paper 
currency, using the same metal, but a fluctuating quantity of 
it as the standard, there can be no proper par of exchange, 
only an average of value can be struck, as of the Indian rupee 
valued at the beginning of 1890 at about is. 5^., and the 
Brazilian milreis at is. iod.\ and the exchanges will vary 
not only with every fluctuation of the indebtedness of the two 
places, but with every fluctuation of the relative value of gold 
and silver, or with every variation in the amount to which the 
paper currency is depreciated. Thus the rupee rose in the 
course of 1890 to nearly is. 8d., but fell again, and now is but 
little above is. 5^. This being so, we cannot tell at once 
whether the exchanges are really "favourable" or not, but 
we have first to calculate the value of the currency. For 


instance, in William III.'s reign, as Adam Smith points out, 
though the nominal exchange was 25 per cent, in favour of 
Holland against England, yet as the English coin was then 
so degraded as to be rather more than 25 per cent, below the 
standard, the real exchanges may have been in favour of 

Another complication is that debts due in one place may 
be paid with bills owed in another place. Thus the Chinese 
taking more goods from England than they send thither, and 
sending to America more goods than they get thence, square 
their accounts by transferring their claims on their American 
debtors to their English creditors. Then again, as the rate 
of discount varies in different places, the loss of interest 
where bills are payable only after several months, is more in 
one place than another, not to speak of the varying uncer- 
tainty of solvency, or the peculiarities of credit in countries 
whose exports, being mainly land-produce, are hardly avail- 
able for exportation except during the two or three months 
that follow the harvest. 

From all these complications it follows that there is room 
for much sagacity and much speculation in dealing with bills 
of exchange, currency, and bullion, so as to meet the balances 
between different commercial centres. This business is known 
as arbitrage. 

Pitfalls. (1) To attach great importance to the real 
exchanges as a grave matter of national concern. No doubt 
it is a grave matter to the individual broker or banker, to 
whom a little turn in the exchanges, one way or the other, 
may make a difference of many thousand pounds ; but the 
success or failure of his speculations is not a public matter. 
The reason for this irrational anxiety about the exchanges is 
the old delusion of the blessings of having much gold in the 
country, and the belief that unfavourable exchanges cause 

1 to " flow out." But it need not do so; and if it does, 
the fact is of no consequence, and we might just as well be 
anxious because to meet a lively demand for headgear in 
L ados style, British hats were flowing out. 

To imagine that a balance of indebtedness of one 

commercial city to another must be paid in gold. Really it 

can be paid, and often is paid, in goods, either direct ly, or 

.- the transfer of securities (bondi . tocks, and 

to 1 1 ' : editor city. 

(3) To think that an "unfavourable 

alue of money, that i I v, 00 absolute 
it gold and le tenio | I be 1 u 1 illation ; and 
■ ill 1 h< < 1. 1 ter imp 

pitfall : b '•■•'11 


informed writers have fallen into it, perhaps confused by the 
fact that currency has so much to do with the nominal 
exchanges, and forgetting that the real exchanges are quite 
another matter. Really the true doctrine is quite simple. 
In so far as gold is sent from a city where the exchanges are 
adverse, to pay a balance of the traders' debts, it is sent 
because it is the easiest thing to send, so portable and 
acceptable ; but the gold currency is not affected ; if it began 
to be affected, gold would quickly be brought by the dealers 
to the mint long before any effect on general prices. So 
Mr. Hankey gives us figures showing that the gold coin used 
in the internal circulation of the United Kingdom regularly 
ebbs and flows at certain seasons (according to the variations 
in the number of payments to be made), quite independently 
of the state of the exchanges and the rate of interest or 
discount. {Banking, pp. 146, 147.) 

Eighth function. To issue bank-notes. A bank- 
note is a written promise of a bank to pay a certain 
sum in legal tender to the holder of the note when- 
ever he presents it at the bank for payment, in 
other words, payable on demand. If a bank can 
induce those who deal with it to take these its notes 
instead of legal tender, and if these dealers can 
induce their own creditors and customers to take 
the bank-notes instead of legal tender, then they 
enter into the circulation, become currency, and 
allow the banker to create wealth out of nothing, 
just like what the Government can do, as we have 
seen in the last chapter, by substituting a paper for 
a metallic currency. Now experience has shown 
that where there is an existing metallic currency 
and at the same time public security of peace, as 
for example, during the first half of the nineteenth 
century, in the British Isles, the United States, and 
China, bankers have been able to issue notes which 
in fact have remained for a considerable time in 


circulation without being presented at the bank for 
payment in legal tender. Three main reasons for 
this are, first, the great convenience of paper for 
many purposes of circulation rather than metal ; 
secondly, the power of a bank, so that traders are 
glad to be in its favour by taking its notes, especi- 
ally when their relations to it are those of borrowers ; 
thirdly, the name of the bank inspiring such general 
confidence in the neighbourhood that few would like 
to make themselves conspicuous and troublesome 
by refusing to take the notes in payment ; and the 
smaller the sums for which notes are issued the 
more difficult the refusal. Hence in ordinary and 
quiet times they become like ordinary currency. 
But then they are separated by the all-important 
difference from an inconvertible paper currency that 
they cannot be overissued, in the sense of more 
being issued than the total value of the transactions 
in which it is convenient to use them. If the banks 
issued more, an equivalent quantity would come 
back to them for payment. 

Pitfall. To think that bankers can " flood " the country 

with paper, can produce an "inflated currency," and thereby 

il rise of prices. This is the notable error of those 

known as the Currency School, who confused the mischief of 

reckless lending and speculating, of which banks undoubtedly 

guilty, with the mischief of depreciating the currency, 

of which banks were not and could QOl DC guilty. In the 

United States, indeed, this error had ■• peculiar ground and 
excuse in the peculiar history of their bank , 1 1 during the 
earh A the nineteenth century the American bank 

■och that their not practically inconvertible, 

and then th< ed to be bank-notes in the pi 

dd be and I ; and individual \ had 

; lymenl m them, though d< ; 

der. A tural confu 


arose from the spectacle of these depreciated notes, and it was 
not perceived that inconvertibility was a condition precedent 
to over-issue. 

Are banks to be allowed to issue bank-notes 
at their pleasure? Never quite at their pleasure, 
because many people are practically compelled to 
take the notes, and the compulsory risk should be 
;met by compulsory security. Many methods of 
effecting this have been practised and proposed: 
probably where the issue of notes is allowed at all 
to banks, other than a Government bank, the best 
method is a deposit in some public office of good 
^securities covering the amount issued, and specially 
mortgaged for the repayment of the notes in case of 
rthe failure of the bank. 

If this is done the objections disappear which have been 
made to bank-notes for small sums, that they encourage 
beggarly bankers and are liable to make the poorer classes 
; suffer great hardship if the bank fails. And another advan- 
tage is that the unity of the currency is not broken : each 
banker's notes are current not merely in his own locality, but 
throughout the country, as the Government holds the 
.securities that make them safe. This is what happens in 
America : the notes of an authorized bank in Texas will 
circulate in New England, and vice versa. Such notes are 
-called national bank-notes ; for though bearing the name and 
mark of the particular bank that issues them, they are 
originally sent to that bank by the Treasury Department. 
The banks themselves, though private institutions, are called 
national banks. 

Other methods of preserving the solvency of banks of issue 
are less satisfactory. To put a maximum limit to the amount 
of notes issued, is no security for the holders of the notes, but 
only a security that their aggregate loss will not exceed a 
•certain amount, and thus but cold comfort. To compel a 
banker to keep always either a minimum deposit of gold, or 
a stock of gold in fixed proportion to the notes, gives but a 
partial security, and is liable to accelerate the banker's failure 
by preventing him using his reserve precisely when he is most 
in need of it. 


But some ask why the profit from the issue of 
notes should fall to private traders and not rather 
to the nation at large in the form of convertible 
notes issued by the Government or by a Government 
bank ? The question is quite an open one, and the 
state of society and character of the Government 
may make all the difference. Where banking is 
deficient and desirable, the permission to issue 
notes may be a useful stimulus to establish it. 
Where a Government is untrustworthy, the monopoly 
of a convertible paper currency is a temptation to 
turn it into an inconvertible one. Often a com- 
promise is a good plan, as by allowing private banks 
to issue well-secured notes, and to pay a tax for the 

The famous English Bank Act of 1844, still in 
force, was a compromise but not altogether a happy 
one. It restricted unduly the amount of bank-notes, 
and continued the prohibition of small notes. Hence 
the troublesome circulation of post office orders, 
postal orders, and cheques for small sums, with 
much waste of time and paper. The Act, indeed, 
made the Government bank-notes perfectly secure, 
but this was a work of supererogation, for they were 
perfectly secure before ; and then no security was 
provided for a large portion of the private (country) 

t do fresh hank could issue: hank-notes ; those 

who bad done bo before were, only allowed to issue a certain 

total fixed amount The Bank of England was treated in 

ray with three differences: first, for the fixed 

i, it was compelled to hold Government 

secti: .idly, it COUld - in;my mOTS Q< 

; hut was obliged foi every mcb d bold an 


equivalent amount in coin or bullion ; thirdly, it was bound 
to give notes for coin if asked. Both the Bank of England 
and the private banks (under which term joint-stock banks are 
to be included) were bound by a previous law (of 1829) for- 
bidding notes under £5. The total authorized notes in 
England and Wales for which no metal equivalent was held 
came to 14 millions of Bank of England notes and about 8£ 
millions of others ; and this sum tended absolutely to decrease. 
For if a private bank of issue came to an end, only f of the 
amount of its notes were allowed to be added to the authorized 
circulation of Bank of England notes. And relatively to the 
present wealth and population of England and Wales the 
total authorized circulation of bank-notes is not a quarter of 
what it was in 1844. 

Similar provisions were applied in 1845 to Scotland and 
Ireland, with the difference that notes as low as one pound 
were allowed ; and all banks of issue had the barren privilege 
of issuing more notes than the fixed amount, provided they 
kept in their vaults an equivalent amount of coin or bullion. 

The word "private bank," by an unfortunate accident is 
used in commercial language not to express any bank that is 
not a public Government, or State bank, but to express a 
bank belonging to a private firm or partnership as distinct 
from a bank belonging to a joint-stock company. Really 
joint-stock banks are private societies, are merely one among 
various forms of private business, of which partnerships are 
another form ; and all deserve the name of private as opposed 
to public, which should be kept for Government institutions. 
As a fact, it seems likely the remaining "private" banks in 
England will in no long space of time coalesce into, or be 
absorbed by, joint-stock banks, so great are the advantages 
of the joint-stock form of business for carrying on banking 
as banking is now generally understood and conducted in 

Ninth function. To deal in securities of all kinds, 
such as shares, stocks, and bonds, the nature of 
which dealing and of which securities will be 
explained more conveniently in the next chapter. 

Tenth function. To do banking for Government, 
both local and central ; that is, for a bank to 
exercise the functions described under the second, 
third, fifth, and sixth heads, with the State or 


Civil Authorities for its customers as distinct from 
private persons or private bodies. This function 
is sometimes called financiering. 

For example, one of the great functions of the Bank of 
England is to facilitate the collection of the taxes, which the 
collectors from Kent to Donegal, and from Cornwall to the 
Hebrides, pay into the Bank of England at the rate of over 
a million pounds a week. And the cash is drawn out again 
as wanted, notably at quarter days to pay the interest on the 
National Debt. This National Debt is intimately connected 
with the Bank, which was in fact first established by the 
Revolutionary Government to facilitate the raising a loan, 
and which now manages all payments of the interest of this 
debt, all transfers of the principal from one person to another. 
This is a serious work, as about 270,000 separate holders 
have to be paid four times a year, and about 96,000 transfers 
are made annually. Hence a subsidy of about £200,000 is 
paid annually by the Government to the Bank of England 
for doing this work, which requires a staff of nearly two 
hundred persons. 


commercial credit (continued). 

In consequence of the system of banking described 
in the previous chapter, much of the new direction 
of a country's industry lies in bankers' hands. 
Instead of the increasing articles of wealth or the 
increasing numbers or capacity of the inhabitants 
of a country being employed in enlarging or im- 
proving the branches of production in which they 
are already engaged, the particular gardens, farms, 
pastures, woodlands, mines, quarries, factories, 
workshops, roads, railways, dwellings where they 
are at work, they are often directed to different 
farms and factories, or from one industry to another, 
because the direction of industry is settled in a large 
manner by the banks. In popular language the 
banks find the money for most new undertakings or 
new development of old ones, and to a great extent 
settle how the national savings are invested. But 
this language needs explaining. " Finding the 
money" means that the banks collect together from 
many owners the legal powers of these owners over 
property ; and " investing the money " means that 
they apply these powers by causing property to be 
used, and work to be done in a particular manner. 


Real money takes but little part in the transaction, 
and is but little affected by the result. Material 
goods other than money are still less affected at 
first, the articles which the banks hold on pledge 
being by comparison trifling. What is collected is 
a mass of claims and rights to material goods, in a 
commercial country like England a gigantic mass. 
And according as these rights and claims are used, 
the production and consumption of goods and 
consequently the amount of national wealth, are 
immensely affected ; but real money, as already 
said, is affected very little. 

The word invest is sometimes used as mere equivalent of 
buy or exchange, as when a man is said to sell land and 
invest the proceeds in railway shares ; or vice versa. Here a 
part share of the railway is practically exchanged for the 
land. But in another sense, to invest means to determine 
industry in a particular direction, causing certain men to 
work at certain goods. In this sense there could be no 
investments in a quite stationary state with no increase of 
population and no inventions. For such investments pre- 
suppose that wealth has been saved or can be appropriated, 
and that there are more men to work it. This new wealth is 
often reckoned in money, often represented by currency, 
sometimes even represented by real money. But the money 
is not the new wealth or the new men ; rather is utterly 
barren in itself and in this aspect a mere counter, as you 
would soon find if you went with your labourers and a cart 
full of sovereigns and nothing more to till the waste : not 
one square yard could be broken up, not one man get his 
breakfast. And you would do no better if with your cart of 
is you also brought all the implements of cultivation, 
and len behind the men : it is the sovereigns you have to 
leave behind. 

How do the banks use the power they have? 
Are they beneficial? Is the vast system of giving 
credit to dealers a good system? Let us first give 


a general answer that credit is a force that can be 
used for good and for evil ; that the history of the 
world shows that every civilized society has used 
this force, so that proposals to abolish credit are 
idle proposals ; but that the history of the world 
also shows that credit has been invariably abused 
unless fenced in with many precautions. The worst 
abuses are those of uncommercial credit. In the 
present chapter we have only to look at the abuses 
of commercial credit, and the injuries that are the 
consequence. But first let us recall and sum up 
the benefits that come from commercial credit. 

(i) Immense economy in the use of the precious 
metals, the cost of getting which would else be a 
heavy annual charge. How much the annual charge 
would be, we cannot accurately reckon, because 
were there no credit the number of payments would 
be mightily reduced. Enough if we remember that 
the economy is of many millions, and if we learn by 
heart the celebrated metaphor of Adam Smith, that 
"the judicious operations of banking by providing 
... a sort of waggon-way through the air, enable 
the country to convert, as it were, a great part of 
its highways into good pastures and corn-fields, and 
thereby to increase very considerably the annual 
produce of its lands and labour." (Bk. II. c. ii.) 

An incidental advantage of this economy is its influence 
in keeping steady the exchange-value of money. For while 
on the one hand the vast growth of commerce requires a vast 
absolute increase in payments, the simultaneous growth of 
credit causes on the other hand a vast relative decrease in 
money -payments ; such credit taking the two forms, the one of 
clearing, compensation, or setting off one payment against 
another; the other of the circulation of paper instruments 


instead of money. So the demand for fresh gold or silver is 
incomparably less than the growth of wealth and population ; 
and this helps towards keeping absolute prices at a level. 

(2) Immense saving in the time, trouble, and risk 
of making payments ; an advantage already suffi- 
ciently explained under the third and seventh 
functions of banks. 

(3) The possibility, by collecting a number of 
savings to employ these much more profitably, 
because on a large scale, than if each individual had 
himself employed his own savings, which are often 
so small as scarce to admit of any productive em- 

(4) By judicious lending to traders and by foster- 
ing new enterprises, banks direct men and wealth, 
and especially new men and new wealth, into the 
most advantageous employments, instead of men 
having nothing to do and wealth lying unused. One 
particular benefit, is that by judicious help to traders 
in temporary and accidental difficulty, they may 
keep together a business that is really sound and 
useful, yet which would be broken up without their 
help, and a great waste of capacity, and probably 
of wealth also, be the result. Another benefit is 
that by making advances to young, eager, and 
capable men (as done, or done till recently, in 
Scotland), there is a greater utilization of capacity 
than would be possible without credit. 

Such, in brief, are the benefits of commercial 
Credit. But there is another side to the shield ; for 
by the injudicious operations of banking, men may 
be diverted from better to worse employments, 


misdirected production and misdirected consump- 
tion fostered, national wealth drained away, many 
of the most energetic and skilful men induced to 
waste their energies and skill on unprofitable 
gambling. All this requires a little more explana- 

First, the great ease of borrowing allows indi- 
gent, ignorant, incapable, or unscrupulous men to 
become masters in production instead of servants, 
and thus fosters the production of bad merchandize, 
and the ruin of the producers of good merchandize. 
For remember, as we saw in the fourth chapter of 
the First Book, that inferior merchandize will often 
drive out the superior, and how men are liable to 
be enticed to depraved consumption. And these 
unsuitable producers are likely to be bad masters ; 
and are liable also by becoming bankrupt to do 
further mischief by causing men to be for some time 
unemployed and property for some time unused. 

For example, without credit the race of English petty 
speculative builders could not have arisen, who from the 
sanitary, the artistic, the financial, and the social points of 
view have been for fifty years a scourge of the country. Only 
let us keep our heads and not rush to the violent conclusion 
that the only or the best way to abolish these pests is to 
abolish banks and credit, for that would be quite a mistake. 

Secondly, by unsuitable bill-discounting bankers 
may direct the new capital and the new men of a 
country into less fruitful channels. This indeed, as 
regards commercial credit, is hardly likely in a 
simple state of banking, where the banker knows 
all the circumstances of all his customers and their 
neighbours, and where there is local lending for 


local purposes. But in much of modern banking, 
especially that conducted in the bank parlours andv 
discount offices of the city of London, only a limited* 
knowledge can be had of persons and still less 
of their undertakings, and fine promises are liable 
to gain the advantage over sound and sober trading*. 

There is a perpetual temptation to bankers to swell their 
dividends by lending to inferior borrowers who offer higher 
interest; and the temptation is increased if the bad habit is- 
followed of the bank paying any substantial interest on 
deposits. The indiscriminate lending of London bankers and 
bill-brokers, the confusion in the relation of these two kinds - 
of lenders, the general ignorance about the character and 
aims of the real borrowers, and the want of mutual help and 
knowledge by bankers of each other's transactions, are evils- 
that have been pointed out, but not remedied. 

The well-known bank director, Mr. Hankey, gives four 
illustrations of bills of exchange which do not deserve the 
title because of the lack of security that when due there will 
be assets to meet them : (1) a bill drawn by a railway con- 
tractor and accepted by the railway company, which will, 
have no cash in hand six months hence unless it can borrow ; 

(2) a bill accepted by shipowners who intend to provide 
means to pay it six months hence by mortgaging their ship ;. 

(3) a bill accepted by builders who intend to provide means 
to pay it six months hence by borrowing from some insurance 
company on houses now under construction ; (4) a bill 
accepted by cotton-brokers who intend to provide means to 
pay it three months hence by pledging the dock-warrants of 
cotton that they expect will have arrived. (Banking, 4th Edit- 
pp. 26 — 28.) 

Thirdly, by the agency of bankers (using the 
term in the widest sense) national savings and 
national energies are often directed to new under- 
takings either less profitable than the old, or entirely 
Unprofitable ; and not only is material disaster the 

ult, but a k'rave moral injury inflicted by the 
encouragement of gambling on tin- largest scale. 
'I he centre of these evils is the slock exchange or 


bourse to be found in every great commercial city. 
The proper use and function of a Stock Exchange 
is to be a free and open market for the sale of 
securities, that is, of titles to property which by 
the law of most commercial nations and by their 
own nature are easily transferable. Formerly there 
was little else of such titles except the stocks or 
bonds of public debts; but in the course of the 
nineteenth century not only have public debts (of 
both central and local Governments) increased to a 
fabulous sum, but also by the spread of joint-stock 
companies, where the ownership of property is 
divided into a multitude of transferable shares, a 
complete revolution has come about in the condi- 
tions of holding property, and few people of any 
wealth are not either bondholders, shareholders, or 

Securities may be divided into three great classes : 
(i) public securities, or the debts of central and local 
Governments; (2) railway shares and debentures; (3) mis- 
cellaneous. The total value of such securities in which 
there are dealings on stock exchanges, amounts literally to 
thousands of millions of pounds. In their legal aspect they 
can roughly be divided into two kinds, one, the share, namely, 
a certificate of partnership entitling the holder to a share in 
the profits of a joint-stock undertaking; the other, the bond, 
namely, an acknowledgment of loan, with the promise to pay 
fixed interest. And of both these kinds there are many 
varieties ; points of importance being whether the loan is 
permanent or terminable, and if terminable, what is the 
method of paying it off. 

That these securities should pass easily from 
hand to hand is in itself a good thing, and they 
form a convenient kind of international currency. 
For by selling securities to foreigners, debts can be 


paid without a bale of goods or a single sixpence 
crossing the sea. Unfortunately, the legitimate 
functions of the Stock Exchange have been over- 
passed, and it has become the centre of the two 
evils to which we have already made allusion. 

The first evil is the introduction of worthless 
stocks and bubble companies, to the great profit of 
contractors, agents, brokers, and other intermedi- 
aries, and to the much greater loss of those whose 
property is swallowed up in these idle ventures. 
And so far from this being an exceptional evil, that 
the total property lost in bad undertakings has been 
reckoned to be nearly as much as that employed in 
good undertakings. 

The technical details of promoting new and worthless 
companies would be long to explain. In general a secret 
association or syndicate pretends to subscribe to a new under- 
taking, introduces it as a security on the Stock Exchange, 
gets the Press to speak well of it, buys and sells the stock 
fictitiously, induces the public whose savings are in bankers' 
and brokers' hands to buy it, and having made a handsome 
profit, withdraw and leave, the undertaking to its fate. 
Notice that between fair and open dealing on one side, and 
complete, deliberate swindling on the other, there are many 
many intermediate undertakings where there is 
rather misrepresentation and delusion than fraud and false- 


The second evil relates more or less to all 
securities, and must be called in plain English 
gambling. Instead of all the dealings on the Stock 
I g confined to bona fide sales and 
pure! 1 and instead of the Intermediate brol 
being only rded by a commission, much 

of tbe dealin peculative buying to tell 

n at a highei ; te oi time and of 


thought, as far as national wealth is concerned. 
Still, if each sale was a real sale, however specula- 
tive, there would be a limit to this dubious pastime. 
As it is, all limits are passed by the device of time 
bargains, by which the parties dealing with one 
another agree the one to deliver the other to accept 
at a fixed price a certain quantity of a particular 
stock at fixed date in the future. There are varia- 
tions in these bargains, many being, if stripped of 
technicalities, a pure and simple bet on the price 
of some stock at some future date. The temptation 
to work on the price of that stock in the interval by 
combinations of dealers or by circulation of false 
news, is only too evident. Betting indeed in itself is 
not of necessity at all wrong, as we have already had 
to observe {supra, pp. 170, 171) ; but to live by betting 
is hardly right ; and those brokers who tempt the 
public by their circulars and advertisements to 
" operate on the Stock Exchange," and who bring 
many a family to discord and ruin, should have the 
same measure dealt out to them as is dealt out to 
the keepers of gambling-houses. 

Three reforms are much needed : the absolute publicity of 
the affairs of all joint-stock companies whose shares are dealt 
with on any stock exchange, so that the names of the holders 
should be known ; the absolute prohibition of all dealing in 
shares or bonds before allotment ; and the absolute prohibi- 
tion of all time bargains, each transaction to be a bona fide 
transfer of stocks or shares. How best to effect these reforms 
depends on the circumstances of different countries. By a 
recent drastic law in the province of Quebec, the parties or 
intermediaries to contracts of selling or buying securities 
without the intention of real delivery or acquisition, are liable 
to five years' imprisonment ; the habitual frequenters of places 
where such misdemeanours are committed are liable to one 
year's imprisonment ; and the holders of such places are to 


fall under the law dealing with those who keep gambling- 
houses. Such a law is at least a manly effort to grapple with 
the evil, and not a feeble palliative like the exception dejeu, still 
the law in Germany and Russia, and only abolished within the 
last twenty years in France, Italy, and Austria, a law by which 
the loser in these speculative bargains is allowed to refuse to 
pay on the ground of its being a gambling debt, and which thus 
gives a premium to dishonesty. In England more delicate 
and indirect treatment is suitable rather than that Canadian 
law ; and we might follow the example of some other countries 
and the suggestions made in 1887 by the Commissioners on 
the depression of trade : (1) that no joint-stock company 
with limited liability be allowed to be fully constituted or to 
commence business till at least two-thirds of its nominal 
capital have been actually subscribed, and a reasonable pro- 
portion paid up ; (2) that greater restrictions be put to the 
borrowing powers of such companies ; (3) that a complete 
statement of accounts in the prescribed form and certified by 
some duly appointed auditor, be sent in by every company at 
least once every year to a Government official appointed for 
the purpose ; and (4) that a cheaper and simpler method of 
winding up such companies be provided. Were these sugges- 
tions adopted the scandalous scenes that surround the birth 
and the burial of so many enterprises would be less frequent. 

The abuses of credit lead to commercial failures, 
panics, crises, and depressions of trade. Regarding 
the first we are so accustomed to them, so familiar 
with individual insolvency, that we are likely to 
have our senses blunted to the misery such failures 
cause in so many homes, and still more likely to 
forget that they are in a great measure due to 
preventible causes ; and in particular, that the 
failures numbered by thousands, which are recorded 
every year in England and Wales, are mostly not 
a necessity, but a scandal. 

The laws of Insolvency and debt prevailing in England 

and Walei from 1869 to 1883, amended but far from perfected 

■ , bad the chanu tet of combining with pervei unity 

the utmost facility for fraudulent and careless debtors to escape 
od begin afresh their Grand or their folly 


the utmost loss to honest creditors, and waste of insolvents' 
estates ; the utmost facility of the creditors of the poor to 
oppress them ad libitum; and the utmost hardship to the 
poor, unabled to be cleared of their debts or escape repeated 
imprisonment, and the total destruction of their homes. 

To make failures in a country as few as possible, a humane 
and rational Government will make the laws of insolvency 
reasonable : punishing all fraud, and among traders all 
culpable negligence ; and compelling such bankrupts to be 
henceforth rather servants and agents than masters and 
principals ; requiring also a certificate of good conduct before 
being licenced to trade, and a deposit of security before being 
allowed to engage men and property in a speculative under- 

A panic or commercial crisis is the failure in any 
commercial centre of many traders and bankers,, 
and the accompanying sudden and great restriction 
of credit. Such crises vary much in extent, inten- 
sity, and other circumstances, but in general three 
disorders may be distinguished in connection with 

First, previous misdirected production : articles 
produced or merchandize imported beyond the real 
requirements of purchasers, immense outlay on 
buildings, machinery, factories, mines, railways,, 
that will bring no profitable return. A crisis settles 
who is to suffer for this previous waste of productive 

Secondly, previous excess of consumption, expendi- 
ture on fine houses, on costly food and dress, on 
intoxicating drinks, on horses and carriages ; and 
capital in consequence is eaten into, for example, 
worn-out machines not replaced, buildings not 
repaired, stocks of raw material not renewed, the 
number of live stock not kept up, woods felled and 
not replanted; and all the while the fine living 


going on as though the means of fine living were 
not shrinking up. A crisis settles who is to suffer 
by this previous excess. 

A common result of these two disorders is a 
delusive appearance of prosperity and a rise, not 
in general (or absolute) prices, so that we could say 
the exchange-value of money had fallen, but in the 
prices of a considerable number of articles which 
are bought by merchants and manufacturers on 
speculation, and of the price of certain articles of 
luxuries for which the demand has been factitiously 

Thirdly, subsequent dislocation of industry, perhaps 
the most disastrous of all the three disorders. For 
the previous division or concert of labour having pre- 
supposed credit, when every one in the commercial 
world now begins to refuse credit and to demand 
cash payment, there results a confusion like that 
at the Tower of Babel. Workmen can no longer find 
the proper person to employ them, or the employer 
the proper workmen ; and the holders of property 
cannot get it turned to proper account. So property 
lies idle, dead stock accumulates which is spoilt 
before it can be used, many workmen have no 
work, and many particular capacities can no longer 
be utilized. 

Moreover, just as the prevalence of the two first 
disorders is accompanied by an artificial rise in the 
price of many goods, so now this third disorder is 
accompanied by a corresponding fall. 

Observe that the third disorder may arise with- 
out being preceded by the two first, when their 


place has been taken by some external calamity 
-such as war or the failure of crops either in the 
home country or in some other country having a 
large trade with it. 

Now it is plain that as prevention is better than 
-cure, the aim of a statesman should be to prevent 
the disorders which lead to a crisis, and which are 
fostered by lax laws on the responsibility of owners, 
^employers, and lenders, notably in England by the 
laws on limited liability and insolvency, and by 
the eager passion for wealth, aroused more than 
ever by the great political and social prizes held out 
■to the rich. But it is also plain that when a crisis 
has come and when its antecedents can no longer 
be dealt with, we can still do much to mitigate its 
ill-effects, if only we can mitigate the consequent 
third disorder, which is the dislocation of industry. 
Now banks that receive deposits on call, or that 
issue bank-notes, are in a position of peculiar danger, 
because the depositors or note-holders may rush all 
together to demand payment in coin (a " run on the 
bank"), and the ordinary reserve may be inadequate 
to pay even one half of them ; and yet the bank 
may all the while be really sound, that is, able to 
pay every note and every deposit in bright new 
sovereigns, if only a few months or a few weeks' 
<ielay were granted it. Unsound banks, indeed, 
which have taken part in rash undertakings can be 
oured by no treatment ; but sound banks will 
respond to treatment ; and it is especially desirable 
to support them, because they in their turn will 
support many sound traders who only want a little 


time to enable them to remain solvent. How to 
gain time for the sound banks and traders is a 
question for local laws and circumstances ; much 
can be done by a great national institution which 
all trust, like the Bank of England, which in fact 
by freely lending in each crisis has done much to 
mitigate them, and would have done more but for 
the restrictions of the Bank Act. 

True that on the three occasions (1847, 1857, an d 1866) 
when the Act was suspended, and the Bank permitted to 
issue fresh notes without a corresponding deposit of gold, 
only once (in 1857) was any use made of the permission, and 
then for an issue of less than one million pounds. But this 
does not prove that the Bank could not and would not have 
helped sound traders more if its hands had been previously 
freer ; and the position it has been given by other bankers, 
as the common holder of their reserves, and the position it 
has been given by commercial public opinion as a Deus ex 
machina to come and save the credit of any great financial 
house in distress, as at the close of 1890 in the Baring 
financial crisis : all this seems to call for a new Bank Act, 
purged of Currency School delusions, and adapted to our new 
financial situation. 

The concerted action of sound banks may sometimes 
allay panics and prevent many unnecessary failures. Thus 
the Association of the New York Banks, in the great American 
commercial crisis of 1873, agreed to pay each other not in 
cash, but in certificates ; and not to pay large cheques over 
the counter in currency, but to certify them, that is, to give a 
collective guarantee that they would ultimately be paid. 
This contrivance met with great success. 

Pitfalls. (1) To think that speculation causes a com- 
mercial crisis by increasing the currency : hence a general 
A prices 1 hence increase of imports, and so on from 
bad to worse, till the currency is reduced by the break- 
redit; hence a general fall of prices; hence 
increase of imports, and at last equilibrium. This mistake 

is akin to those on foreign exchanges and bank-notes already 

explained in the last chapter, and has a plausibility that has 

i many excellent writers. Th< a rise of prices, 

>ugh, but not a genera] ri e, being only in those goods 

bich there is gn . And the ri e has nothing 


to do with money or currency, but is due to a factitious 
demand supported by credit ; for the sales are on credit, not 
for cash. Very likely also there is a great excess of imports 
before the crash ; but this is not because general prices are 
higher, but because speculators, projectors, and prodigals 
are recklessly buying. And the low prices after the crash 
are not due to the standard of value having altered, but to 
traders having accumulated supplies that are not wanted, 
and if sold at all can only be sold, as they say, dirt cheap. 

(2) To think a crisis implies a drain or deficiency of gold 
or silver. The fact that all debtors, and notably banks, may be 
nominally bound to pay in gold or silver has deceived people 
into thinking these are scarce in a crisis ; whereas, in fact, 
there is plenty of gold and silver to be had, for example, 
during the panic of 1866 in England the imports of gold were 
really every week in great excess over the exports : what 
is scarce is wealth to exchange for the gold or confidence to 
lend it. 

Depression of trade is that condition of compara- 
tive poverty and distrust that follows a crisis ; and 
also the state of poverty that may come where those 
two antecedent disorders, or some external calamity 
have occurred without producing actually a crisis. 
So for some years in England previous to 1887. 

Pitfall. To think depression of trade or a crisis may be 
due to a general over-production or a general glut of com- 
modities. This is to think selling is like giving, a one-sided 
business, and is to forget that though currency may be used 
as a medium of exchange, what is ultimately wanted by 
sellers no less than buyers is not money, but other goods, and 
that precisely it is other goods that are wanting. For a crisis 
implies not over-production but under-production or mis- 
directed production. There has been some calamity like war 
or failure of crops, and hence under-production ; or there 
has been an eating into capital through over-consumption, 
and hence again under-production ; or else through reckless 
speculation or some sudden change of fashion or demand 
(change from war to peace, or from silver to gold as the 
material of money), production has been misdirected, and a 
stock of goods accumulated, to buy which the former buyers 
have no longer the wealth or no longer the inclination. To 
think, therefore, that more consumption or less production is 


wanted to mend a depression of trade, is a mistake, though 
a natural one ; for many merchants and manufacturers have 
on their hands large stocks of unsaleable goods, and cry out 
that too much has been produced. And too much, true 
enough, has been produced of some things, but then also too 
little of other things. 

This mistake is further to be explained on grounds similar 
to those of the mistake on the luxurious expenditure of the 
rich, already given supra, pp. 145, 146. 



Credit that is not among traders for the sake of 
trade is to be called uncommercial credit, and is so 
different from the other in its character that it 
requires separate treatment. True, that for much 
of uncommercial credit the agencies for lending are 
the same as for commercial credit, namely, banks 
in the wide sense of the term ; but the character 
and consequences of their lending are very different 
in the one case from what they are in the other. 

Uncommercial credit can be divided into three 
main divisions, lending to public authorities, lending 
to cultivators or owners of land, and thirdly, mis- 
cellaneous credit. Let each be taken in order. 

At present the national debts of the world, that 
is, the debts guaranteed by the State, amount to 
Over five thousand million pounds, yielding annually 
over 225 million pounds interest ; and besides this 
the debts of various local authorities, urban and 
rural, amount throughout the world to many 


hundreds of millions. The common feature of such 
debts is that their interest is procured by a com- 
pulsory tax or rate levied on the subjects of the 
particular authority ; and their security rests on the 
willingness and capacity of the authority to levy 
such taxes and rates. Whether it is good or bad 
for such vast sums to be owing is not our present 
business, but only to look at the nature of such 
credit. The lenders in such cases have nominally 
lent the local or central Government so much 
money ; in reality little if any money, and not much 
currency has been transferred ; what has been 
transferred is a mass of rights to property and 
consequent power over persons ; and new wealth 
and population has been directed, or old wealth and 
population diverted, to the particular channels the 
authorities have determined, for example to make 
ships and fortresses, to march and fight, to construct 
roads, harbours, streets, sewers, or water-works. 
How the wealth and population is in this manner 
directed is a matter of great importance to the 
nation, but of no immediate importance to the 
creditors, who can neither control the method of 
expenditure nor demand back what they have lent, 
but have only the passive function of receiving the 
interest. So in fact, they have not so much 
advanced a loan as purchased a perpetual an- 

Without a widely extended system of banking such 
as described in the ninth chapter, the widely extended 
system of Government borrowing could never have 
arisen and could never be carried on. The savings 


of a multitude of private persons must be collected, 
as banks alone know how to collect them, if they 
are to pass into the hands of the authorities ; and 
it would be scarcely possible for these authorities 
in their turn to pay hundreds of thousands of 
annuities without the intervention of banks. But 
this use can easily be turned into abuse. Great 
bankers or combinations of bankers may become 
the masters rather than the servants of the State, 
may not merely facilitate loans, but may encourage 
them to the public loss and their own private gain, 
may be in collusion with contractors in promoting 
loans for what are called productive purposes, like 
State railways or harbours, may even control the 
public policy of States and dictate on peace or war, 
and still worse may dominate the interior policy of 
the Government, hindering legislation meant to 
protect the borrowers and landowners, or sweeping 
away such legislation. And in fact the domination 
of Jewish financiers in several countries of the 
Continent has been so great, that it has been said, 
hyperbolically but instructively, that " Europe is 
the government of the bankers, for the bankers, by 
the bankers." 

Pitfalls. (1) To ignore the modern revolution in public 
affairs and the grave political dangers arising from the con- 
nection of banking with Government. 

I To denounce the capitalistic or plutocratic rule, and 

il servitude of the State to financial magnates, 

without distinguishing one State, irom another, or making 

the nature and extent of the alleged servitude, or 
hel] ■ 1 ore the □ te of banking without the aim 

A great number of writers on public affairs Call Into one 

or Other of these two pitfalls. 


The second main head of uncommercial lending 
is agrarian credit, lending, that is, to landowners 
and farmers as such. For this sort of lending the 
intervention of banks is not indeed absolutely 
necessary, but has greatly encouraged it, notably 
lending in the legal form of mortgages. Indeed the 
growth of mortgages in Europe and America during 
the course of the nineteenth century has been almost 
as striking as the growth of public debts; and in 
several countries it is probable that the larger half 
of the net revenue from land does not remain in 
the hands of the owners, but has to be trans- 
ferred year after year to mortgagees and similar 

Now in agrarian credit it makes a great differ- 
ence for what purpose the loan is made. Let us 
distinguish four different cases by four different 

(A) For development of the land. Of this a 

conspicuous instance are the loans on mortgage at 

six to eight per cent., that have been made by the 

investing classes in the East of the United States to 

settlers in the West. Although all was reckoned in 

money, the real loan was the transfer of farming 

implements and live stock from the East to the 

West. The growth of a vigorous rural population 

has been fostered by these advances. 

The same results have appeared in the Argentine Republic, 
where the interest indeed has been very heavy, some twelve 
per cent., but then the soil and climate admirable and the 
taxes light ; while now, if the taxes have risen, the interest on 
the previous loans has been reduced to less than half by the 
lowering of the standard of value consequent on the over-issue 
of inconvertible paper currency. 


Another example, quite a different one, of loans for the 
development of land are those granted at low interest by the 
English Government to drain the heavy clay lands of England, 
loans which gave, for a time at least, great impetus to English 

(B) For reparation. To make good, for example, 
the damage by fire, flood, hail, murrain, that 
requires fresh buildings, earthworks, plants, seeds, 
live stock. By credit of this kind persons and 
things as in the previous case are directed to the 
land ; and this is a good thing, nay, in this case 
almost a necessity. Unhappily, where the credit 
after such calamities is in the shape of a loan from 
bankers, the distress of the sufferers is only too 
likely to result in their having to pay an exorbitant 
interest. Hence in a country with a good rural 
constitution such calamities, when confined to a 
few persons, are to be met by the mutual insurance 
of rural guilds ; and when widely spread, by grants 
and loans from the Government. 

(C) For paying taxes. Where Government 
requires taxes to be paid punctually in currency, 
while the agriculturist receives his revenue in kind, 
and can only sell his produce conveniently at 
uncertain intervals, the intervention of a banker to 

the taxes for him at the right time, and to be 

id at the agriculturist's convenience, is in itself 

a benefit to banker, agriculturist, and Government. 

Unhappily this intervention Is liable to gross abuses, 

rbitant inl may be charged, and the poor 

debtor may be driven from Ins farm, or 

t, if not at law, tin- debtoi of l>is 

litor. Two exampli i on a wide scale of this 


terrible evil have been seen during the second half 
of the nineteenth century in British India and in 
the Italian Kingdom. 

Observe that in this case of agrarian credit, 
unlike the cases A or B, there is no bringing fresh 
moveable wealth, or to use the common phrase, no 
application of capital, to the land ; all that this 
kind of lending does, when there is no abuse of it, 
is to enable a withdrawal of wealth from the land 
to be effected with the least inconvenience. 

(D) For paying off claimants. This is borrow- 
ing to pay off coheirs or others who have claims on 
the property, or simply borrowing to be able to 
buy the land. The amount of such borrowing 
varies immensely according to the laws of inherit- 
ance and the powers of alienation. The nineteenth 
century having been conspicuous in Europe for the 
break up of joint families, the compulsory division 
of lands among children male and female, and the 
increased power of selling or charging lands, has 
naturally been conspicuous for the increase of debts 
under this head. And in such cases, as in case C, 
nothing fresh is brought to the land. On the con- 
trary, this form of credit is the great channel which 
the banks have opened for draining away the 
produce of land. For the result is not merely that 
one owner is in the place of another or of several 
others, but that this one owner has less of the 
produce to apply to the land, having to send away 
so much to pay interest or rent charges. Hence 
the too familiar spectacle of " encumbered " land- 
owners in the United Kingdom, of penurious peasant 


owners in France, of a wretched throng of rural 
debtors in the Austrian dominions. 

Of the four cases of agrarian lending, the three 
last are plainly more or less calamitous, and as far 
as possible are to be avoided. How to be avoided 
we will soon consider ; but here observe that even 1 
in the first case (A) it may happen, if the interest 
charged is high, that the advantage of quicker settle- 
ment and development may be more than out- 
weighed by the subsequent drain from the land to 
pay the interest. So in general we must hold fast 
to the maxim of Shakespeare, that borrowing dulls 
the edge of husbandry. 

All lending which is neither commercial, nor 

agrarian, nor public — neither traders', farmers', nor 

Government credit — can be put under one head as 

miscellaneous. The principal ends of such borrowing 

are to stave off hunger, to indulge in dissipation,. 

or to fulfil some expensive duty which custom 

prescribes, for example the celebration of marriage 

festivities in Hindustan, of funeral rites in England, 

of the village festival in Italy. In all such cases, 

ther the expenditure is of the best kind, as 

n a workman gets into debt to provide nursing 

and medicine for his sick mother, or of the worst 

kind, as when a young man borrows for his 

debaucheries, the direction of wealth induced by 

the tender is not towards production, but towards 

consumption; if there is any profit oul of which 

rest is paid} it must come from other 

lources; the loan itself, often actually in tfa 

i le in money oi at lea it in currency, is 



essentially barren ; all gain from such loan is 
presumably to make profit without labour from 
the property of another, is to turn the misery or 
folly or ignorance of the borrower to the enrich- 
ment of the lender, and constitutes the offence held 
in all ages in utmost detestation, and known as 

If we take usury in the sense of all unrighteous gain from 
the loan of generic (fungible) property, whether by taking 
interest where none ought to be taken, or by taking exorbitant 
interest, it can be seen, and is seen in frightful proportions, 
in rural credit as well as in what I have called miscellaneous 
credit. Also in commercial credit it is by no means unknown ; 
and is even seen in public credit, particularly in the case of 
dependent States and public bodies. Three classical instances 
are the lending by Cato, Brutus, and other Roman magnates 
to the provincial municipalities ; the lending by the servants 
of the East India Company in the eighteenth century to the 
Nabob of Arcot ; and the lending by European financiers in 
the nineteenth century to the Khedive of Egypt. 

Pitfall. To say that money is a productive instrument, 
and that the lender of such an instrument is entitled to 
remuneration. For money in itself, as we saw at the 
beginning of the last chapter, is " dead stock . . . which 
produces nothing," to speak with Adam Smith (Bk. II. c. ii.), 
or, to speak with a great banker of our own day, " in the 
shape of coin . . . perfectly unproductive." (Hankey, Banking, 
4th Edit. p. 63.) And in many circumstances it is not so easy 
to get it out of that shape, very difficult to invest savings. 
So the father of Pope the poet, on retiring from business, 
took into the country with him a strong box with nearly 
£20,000 in it, taking out what he wanted from time to time. 
A similar difficulty of investment caused, as Cliffe Leslie 
points out, the accumulation of the vast stocks of plate in 
private houses in the sixteenth century ; and if we wish to 
learn the unproductiveness of loans in the fourteenth century 
in England we can turn to the clear explanations of Professor 
Cunningham. (Industry and Commerce, pp. 325 — 333-) 

The prevalence of usury and the indescribable 
misery it has caused from remote ages to this day 
are among the saddest features of history, and the 


prevention and punishment of this crime one of the 
first duties of Government, but difficult, because of 
the wiles of usurers, the just requirements of com- 
mercial credit, and the influence of lenders on 
legislation : but because difficult, none the less 

In England the inexperienced among the upper 
and middle classes, and all the poorer classes, are 
exposed to the ravages of usury. The sums exacted 
by pawnbrokers are indeed limited by law; but 
•even with the limitation, the actual charges for 
borrowing on pledge are grossly exorbitant, where 
with security for repayment so perfect, the interest 
ought not to exceed a fair compensation for the 
labour and property used in keeping the pledges. 
Far worse is the oppression of the professional 
money-lenders, who do a large business in petty 
loans to poor clerks, mechanics, and small trades- 
men, at an interest often practically over 100 per cent. 
And except in the rare cases where illegal fraud can 
be proved, the law inflicts no punishment on these 
usurers, beyond causing them now and then to lose 
a victim, and now and then to be held up to in- 
effectual opprobrium. And in many other countries 
besides England, the slackness of the law and the 
absence of preventive institutions have given in this 
nineteenth century such an impetus to similar mis- 
Is that it has been called " the century of usury." 
Countless peasants of France and Italy, Germany 
and Austria, have hen devoured by these harpies, 
and in British India the evil reached such a pitch, 
that in 1 <s 7 f ^ a little protection was extended to the 


unfortunate debtors, and the courts empowered to 
reduce exorbitant interest. 

Usury laws, therefore, of some sort are a prime 
necessity in a well-regulated State. The particular 
sort must depend on the particular circumstances 
of the country. In a commercial country a serious 
but not insoluble problem is how to repress and 
punish the mischievous usurer without hampering 
the useful banker. It might be solved as follows. 
Let a legal rate of maximum interest be fixed for 
all loans on a varying scale according to their 
amount, duration, and security, and all interest 
above the legal rate to be irrecoverable and deemed 
usurious ; but then let bills of exchange be exempt 
from this law and the rate of discount be unlimited ;. 
only, lest usurers make their evil loans in the form 
of bills of exchange, let no one be capable of being 
party to a bill, except a bona fide and registered 
trader of a certain standing and rateable value. 
Thus banks would not be hindered in supporting 
traders in difficulties, or in charging the high interest 
which the risk they run justifies, and which the sound 
trader is justified in paying, as the loan is not to post- 
pone and thus aggravate, but much rather to avert, 
his ruin. And further, for the detection and punish- 
ment of usurers, let the public prosecutor and the 
judges have wide powers and discretion to enable 
them to prosecute and sentence with proper dis- 
crimination according to various degrees of deception 
and extortion. 

Nor let the incapacity of all non-traders to draw, accept, 
or endorse a bill of exchange or promissory note be con- 


sidered a hardship ; this law would but fulfil the wish of 
Mr. Commissioner Kerr for some short way of making all 
such bill transactions illegal, a wish expressed in a case 
before him (Sept. 1, 1891) where an unfortunate country- 
curate had borrowed sums amounting to £13 4s. and had 
paid for this accommodation sums amounting to £76. And 
we have the dictum of an experienced banker (Mr. Gilbart, 
Banking, p. 116, Edit. 1871) that "persons out of trade have no 
business with bills." 

Another suggestion (of the well-known Belgian economist 
M. Perin) has been to subject discount to the limitations of 
interest, but to allow a central bank like the Bank of England 
or the Bank of France at any time to exceed it, and all other 
lenders to discount up to the same excess. The point to 
notice is, not so much the merit of this or the previous 
suggestion, as the fact that where there is a will to check 
usury there is a way. 

But the question naturally arises, what should be 
the legal rate of interest, how is it to be settled ; is 
it to be ten per cent, as in England in the reign of 
Elizabeth, or eight per cent, as under Charles I., or 
six per cent, as under Charles II., or five per cent, 
from Anne to Victoria, or what ? If it is fixed too 
low, it either stops suitable lending, or tempts to the 
evasion of a law that public conscience will not 
recognize as just. In the one case those in temporary 
difficulty have to resort to forced sales instead of 
being pulled through by a timely loan ; and those 
sales may mean their ruin. In the other case, the 
artifices to evade the law and the risk of its penalties 
are likely to cans'; the exaction of a higher interest. 
Thus in both cases the borrowing classes are 

injurcl by the very low rate that was intended for 
their benefit. And obviously if the rat'- LS too high 

it \>< t li'- legalization of usury. 

, ther< ■ 'Men 

Dimon sense can attain it. For we * .in 


discover the market-rate of interest, not indeed of" 
all loans in a large country, for such rate is a fiction, 
but of each particular kind of loan in each particular 
centre. A market, remember, excludes all secret 
dealings, and presupposes the dealers in it to be 
acquainted with their business. Hence any jury 
of men of business, property, and sense can tell 
within narrow limits what is the rate of interest on 
different forms of lending in every loan market ; 
lending on mortgage on houses or on land ; lending 
on deposit of valuable securities; lending on bills 
for one month, three months, or six months; lending 
on ships or cargoes : always supposing in all such 
cases that all is above board and no one ashamed 
of the transaction. With the causes of the particular 
rate (such as the productivity of industry, the desire 
of revenue at a future time, the desire of retiring 
from business, the wishes or necessity of borrowing, 
all to be explained in the third chapter of the next 
Book) we are not now concerned, only with the fact 
of their existence, and the fact that any reputable 
lawyer in active work in London, Liverpool, Glasgow,. 
Dublin, New York, or Chicago, could tell us with 
scarce any delay what were the rates for particular 
classes of loans in each of these centres. This being 
so, it is easy for the law to fix the legal maximum 
rate of interest for each class of loan at a reasonable 
rate, that is, somewhat above the market rate. 

The legal divisions of loans, the amount of the excess of 
the legal maximum above the market rate for each kind of 
loan, the length of time between each revision of the rate, the 
area over which each rate should extend, the special per- 
missions for special risks, and other details, are able to be 


settled reasonably if there is a real wish for their settlement, 
and not a wish to make difficulties in order to practise 

Usury laws prevail in most of the States of North 
America and in much of Europe, but not by any means as 
effective as they might be made. In the British Islands 
the usury laws were abolished soon after the middle of the 
nineteenth century, partly because of the prejudices of the 
time, partly because the old law was unsuited to the new 
circumstances. The prejudices were, that men were all alike, 
all sharp men of business, that extortion was impossible, that 
none needed protection, that the State's business was only to 
keep order and enforce contracts. The change in circum- 
stances was the growth of commercial credit and of the 
facilities for making profitable investments of savings, which 
growth was due in great part to the previous technical 
revolution. The old usury law as it stood gave rise to 
scandalous evasions and real mercantile inconvenience. Only 
the reform ought to have been in the shape of a new law, not 
of a no law. 

The law on pawnbrokers, indeed, still remains, a relic of 
the usury laws, but rather a mockery than a relief of the 
suffering poor, something over twenty-five per cent, being 
lawful on loans not exceeding two pounds, and over twenty 
per cent, for loans between two and ten pounds, while 
above that sum there is no protection. This is for Great 
Britain, but for Ireland still more exhorbitant interest is 

Pitfalls. (1) To say that usury laws are at best unnecessary, 
as the competition among lenders prevents extortion. In 
reality there is no competition among usurers, whether English, 
Jewish, or Indian, but combination ; no market, where the 
borrowing has shame, or secrecy, or blind ignorance, or cruel 
necessity as its companions. 

(2) To say that usury laws injure the debtors by hindering 

.1 loans, or by causing a higher rate to be charged to 

e the lender against penalties, or a higher rate by driving 

good people oat ox the lending business and lessening the 

supply of loans. True a clumsy usury law will produce some 

of tn< - ts, though even then the law gives more gain to 

debtors by \\ ction than loss by its clum in< And a 

good law will only hinder loans thai will be ruinous to the 

: dot v. ill the i ate ol Intere \\ in 1 tous and 

• d, 01 the character of ' be lendei made 

land ol to-day, 
the utmost that can be 1 l, and the lenders in any 1 

as mercili be. 


(3) To say that as we cannot stop usury, 'tis idle work 
trying, and only brings law into contempt. But exactly the 
same might be said of stealing, to justify a legal permission 
to steal ; only the case is stronger against usury, because the 
law is not merely a passive spectator of iniquity, but actively 
intervenes to enforce immoral contracts, the judges in India, 
for example, being described as "helpless agents in the hands 
of grasping usurers." 

(4) To say that the Church has been compelled by the 
progress of science and civilization to alter her teaching on 
usury, and to permit what she formerly forbade. In reality 
the essential wrongfulness of making profit without labour, 
risk, or responsibility from the property of others, of claiming 
an increase from what is essentially barren, of turning the 
simplicity or distress of others to one's own gain, has been 
maintained by the Church from her foundation to this day ; 
and the resort of usurers, whether in the Temple of Jerusalem, 
the drinking-shops of Poland, or the loan offices of England, 
she has ever looked on as a den of thieves. Usury is just as 
unlawful now as in the middle ages ; but many transactions 
.bearing the same name or appearance, which were usurious 
then, are now innocent ; the Church rightly forbade them then, 
and as rightly permits them now. (See Father Joseph Rickaby, 
Moral Philosophy , 2nd Edit. pp. 255 — 263.) 

But prevention is better than cure ; and laws 
against usury should be supported by other laws 
and institutions, notably by humane laws of debt, 
by mutual credit associations, by charitable lending, 
and by co-operative retail trade. A few words on 
each of these four will bring this chapter, and this 
Book, to a conclusion. 

For debt let no one other than a trader be 
punished under any pretext, unless he be convicted 
of fraud ; and with the same exceptions, let not his 
future earnings be capable of being seized by any 
creditor or assigned by any judge, if he once declare 
himself insolvent and surrender his property. And 
let every individual, and on a larger scale, every 
"head of a household and his dependents, be fenced 


round with a reserve of inviolable property, which no 
one can seize, property such as clothes, bedding, 
implements of his mental or manual work, and if 
the head of a house, then also his homestead, that is, 
house and land up to a certain value or certain 
area, and the live stock, materials, and implements 
necessary for its cultivation ; and let no farming- 
land be mortgaged for more than a modest proportion 
of its value, and no mortgage valid or homestead 
alienable without the joint consent of husband and 

Very little of the above humane and rational law 
of debt is in force in the British Isles, in Western 
Europe, or British India; while a great deal of it 
is in force in various States of America. 

For example, in the State of Illinois every householder 
who has a family is entitled to a homestead to the value of a 
thousand dollars, consisting of farm and buildings thereon, 
where he lives either as owner or tenant. This homestead 
cannot be seized or sold for any debt except for rates and 
taxes and for money due for the purchase or improvement of 
the homestead. It cannot be alienated or mortgaged, without 
the wife (or if she be the owner, without the husband) giving 
a written consent. When the householder dies the widow 
(or widower) enjoys the rights of the deceased as long as she 
(or I in the homestead; and their children enjoy 

these rights, till the youngest of them is twenty-one yeai 

If a man (with the due approbation of his wife) sells 

Ml. the proceeds up to the value of a thousand 

dollai ipt from tion for one year, to enable him 

to have time to invest them in another homestead. And 

.: t 1 of law and sworn commia 
valuing and separating the exempted thou and dollai worth 
al property from the rest. Then, emotion 

of th<: home tead, all debtoi ar< oi an inviolable 

minimum; inasmuch as pei onal property con 1 tin 

. and picture 1 of 1 he family, are< ■< mpi 
, one 1. 1 tli I" 


of other articles at the option of the debtor, and three 
hundred dollars' worth if he is the head of a family. 

This is the law of Illinois ; and though there is great 
variety in the details and extent of the exemption laws of 
other States, the general principle on which they rest is the 
same. And the objections to these Homestead Exemption 
Laws that they foster dishonest borrowing, injure cultivators 
by lessening their credit or making them pay higher interest 
or higher rent, are objections that by anticipation have 
already been answered in this chapter. It is enough to add 
that for every one case of dishonesty they foster there are 
fifty they check, notably the artifices of unscrupulous money- 
lenders ; and that if they were such an injury to rural credit, 
the farmers would never have been so eager for their intro- 
duction, so zealous for their maintenance, nor would capital 
to the value of many hundreds of millions of dollars have 
passed on loan from the Eastern States to the Western, and 
helped the formation of many thousands precisely of these 
exempted homesteads. 

Associations for mutual lending, especially among 
small farmers, have proved of the greatest help 
against usury, and have been a means of providing 
the credit needed by agriculture without the injury 
that so often accompanies it. For example, in 
Germany during the last forty years the associations 
known by the name of their founder Raffeisen, have 
been of the utmost benefit to the peasantry, ena- 
bling them to borrow on easy terms and on fitting 
occasions, because the unlimited liability of the 
members has allowed each association itself to get 
credit easily, while the mutual control of the members 
has prevented foolish borrowing. 

Similar associations are spreading in Italy ; but the most 
striking feature of mutual credit in that country is the giant 
growth within the last twenty years of people's banks with 
limited liability and lending, as a rule only to members, but 
these members already over half a million in number. These 
banks are of the greatest help to small landowners, small 
traders and artisans, discounting bills at low rates, lending 
on security and often only on honour. The higher classes 



join in them, liability being limited ; and these banks 
encourage saving by giving large interest on small deposits. 

Charitable lending can assume many forms, work 
untold good, avert countless deeds of usury. The 
most conspicuous form of it since the end of the 
fifteenth century have been the lending houses 
known as monies pietatis or monti di pieta, namely, 
institutions for lending on pledge and not making a 
profit out of the transaction. The larger the endow- 
ment of the mans, and the less the costs of adminis- 
tration, the lower the interest that need be charged. 
Several of them have survived to this day in spite 
of revolutionary plunderers, and fulfil for those in 
distress the office fulfilled' in England and Ireland 
by pawnbrokers, but without the cruel charges. 

Well-endowed, charitable lending-houses in each of our 
great towns, with branches in small places, and the elimina- 
tion of pawnbrokers, would be a great alleviation to our 
poorer classes, and would also lessen the facility for dis- 
posing of stolen property. This would be better than the 
Government monopoly of pawnbroking suggested by Professor 
Sidgwick, though even that plan would be a great improve- 
ment on the present system. 

Lastly, co-operative retail trade, of which England 
has furnished so many examples in the shape of 
co-operative stores among both the richer and 
poorer classes, are an excellent preventive of one 
kind of debt, those to shopkeepers for unnecessary 
goods, or necessaries indeed, but necessaries for 
which the buyers could easily have paid. This 
foolish, often grossly culpable, anticipation of future 
income is checked by the necessity of casb payments 
at co-operative stores, and one sourci of much usury 
dried up. 


Book III. 



In this Book we have to inquire how each family 
or person gets a living ; what is the nature of their 
revenue and earnings ; why it is that some work so 
much and receive so little, while others work so 
little and receive so much ; what are the various 
relations between masters and servants, rich and 
poor ; and how far what is evil in these relations 
can be avoided and amended. 

Various divisions have been made of the classes 
who divide, in Adam Smith's phrase, " the whole 
annual produce of the land and labour of every 

intry." The simplest plan is to base the distinc- 
tion acording as the receipts of each person arc for 
labour alone, for property alone, or for both com- 
bined ; and the simplest nomenclature to call the 
first wages, the second rente, the third prufite. 


In this wide and abstract use of the three terms 
they will indeed include much that is not commonly 
called profits, rents, or wages. But this incon- 
venience cannot be avoided whatever terms we 
use for the present purpose. Thus, under wages we 
must include not merely what is commonly known 
as wages of workmen and of domestic servants, but 
also the maintenance of slaves, the rations of soldiers, 
the salaries of clerks and managers, the fees of 
lawyers and doctors, even the official incomes of 
Cabinet Ministers. For the highest as well as the 
lowest forms of labour must be included without 
regard to stations in life. 

Rents likewise must include all receipts from 
property lent, let out, or leased ; and thus not only 
what is commonly known as the rent of farms, 
houses, building land, shops, and factories, but also 
all interest on all sorts of loans, and most dividends 
paid to the shareholders of joint-stock companies. 

Profits likewise must include not only the 
revenues of manufacturers and tradesmen, but the 
revenues of peasant proprietors and tenant farmers 
however small, and of such shareholders as in fact 
take part in the working of the business whence 
their dividends come. 

In the First Book we saw how labour could be divided 
into industrial and non-industrial labour, according as its end 
was or was not the production of wealth. {Supra, pp. 10, n.) 
The wages of the first kind of labour can be called industrial 
wages, of the second, non-industrial wages. A similar distinc- 
tion can be made with rents. Industrial rents are those from 
property used in production, as the rent of farms, shops, and 
factories, the interest from most property used for commercial 
credit, the dividends of many companies, in particular rail- 


way dividends as far as not earned from pleasure traffic but 
from business traffic. Examples of non-industrial rents are 
the rents of dwelling-houses, railway dividends as far as 
derived from pleasure traffic, the interest of most property 
used for uncommercial credit. These non-industrial rents 
have become enormous in recent years through two main 
causes, the vast growth of Government debts for war or 
ornamentation, and the vast growth of cities with the accom- 
panying habit of living in hired houses. Finally profits, though 
generally industrial, are not always so, examples of non- 
industrial profits being those of hotel and lodging-house 
keepers, of the lessees or managing owners of places of 
amusement, of pleasure steamers, of agencies for travelling. 

An explanation must be added on the foregoing 
use of the term rents as one of the three great heads 
of revenue as distinct from profits and wages. It 
is not the same as the term rent or rent of land 
frequently used by economists since the time of 
Ricardo to denote the differential gain due to the 
law of diminishing returns in agriculture, that is, 
to denote one out of the several kinds of differences. 
In this sense rent excludes the greater part of what 
our own definition has included, namely, house 
rents, shop and factory rents, interest on loans, and 
dividends of almost every kind. On the other hand, 
this use of the word rent includes some revenues 
which we have put under profit. For example, all 
the revenue of a man who farms his own land we 
call profit ; but much of it would be rent in the 
Ricardian sense, which he would be considered as 
paying to himself. 

J>ut there are grave objections to using rent in 
this sense, and then making it by itself one great 
head of revenue. 

(a) We are Likely to think that there are three 
instead of two factors of production, and imagine 


that the inherent powers of nature are in land only,, 
instead of in all material things. (Supra, p. 18.) 

(b) We are likely to think that the law of 
diminishing returns applies to agriculture alone 
instead of to all industry. (Supra, pp. 26 — 28.) 

(c) We are likely to forget that if by rent is meant 
the difference which a common market price enables 
more favoured producers to obtain, such differences 
are not only due to the law of diminishing returns, 
but to several other causes, as we have seen in the 
fifth chapter of the Second Book ; and though under 
particular circumstances the differences due to the 
law of diminishing returns in agriculture may be 
very conspicuous, this does not justify us in treating 
them apart. 

(d) We are often unable to determine who is the 
actual receiver of rent in this peculiar sense. For 
precisely where market prices are prevalent and 
rent (in this sense of differences due to the law of 
diminishing returns in agriculture) is common, there 
also is common the capitalization or realization of 
differences, explained at the close of that same 
chapter. Thus a great part of what is called farm 
rent is paid away by the apparent receiver in the 
shape of interest on mortgages and rent charges ; 
and above all, the actual owner of the land, where 
land is often bought and sold, may not at all be the 
person who receives the difference or any part of 
it ; for he may have bought the land at a price 
proportioned to the rent-roll. So it is well said by 
Cliffe Leslie (Essays, p. 267), that " rent in a vast 
number of cases is virtually a form of interest, being 


the return to an investment by purchase or outlay." 
This last word outlay brings us to another objection.. 

(e) We are often unable to determine concerning 
rent in this peculiar sense how much it amounts to, 
quite apart from the difficulty of determining who 
gets it. Immense apparent rents may really be the 
fruit of immense previous expenditure. This and 
the previous objection are of great practical import- 
ance. By neglecting them, some economists have 
created an imaginary class of "landlords," whom 
they have pictured as taking an ever-increasing 
proportion of the national wealth. And our actions 
have been influenced by our phraseology. For 
example, had not this cne-sided view of rents been 
prevalent, a sort of common-place in economics, it 
would scarce have been possible when the Irish 
Land Act of 1881 was being passed, and the sum 
payable by the tenants was to be reduced, to have 
made the whole of the reduction fall on one class 
of receivers, the "landlords," instead of being 
apportioned as far as possible pro rata among all 
receivers, whether called landlords, mortgagees, 
annuitants, rent-chargers, or any other name. 

(f) We are debarred from applying the term 
rent in this peculiar sense to that vast multitude and 

amount of payments in different times and places 
from tenants to landowners, where the product 1 j 
not brought to market, and where therefore theri 
no market-price or indeed any prici , and tin r< fore 
no differences, and therefore (if renl is to I"- taken 
of diffi ', no rent : which is very 

1 nt. 


So then, Professor Sidgwick having made one 
step in the right direction and classed together the 
rent of dwelling-houses with non-industrial interest 
(Polit. Econ. p. 267), let us make a further step, 
and class together the rent of land with industrial 
interest under the common name of rents. 

It may perhaps be urged here, that although it is right 
enough to make receipts from property one great head of 
revenue, and right enough to have one technical term to 
express them, it is a pity to use the word rents for that term. 
I answer that if I knew a better word, I would use it ; that 
the only alternative seems "interest," which is just as likely 
to mislead us ; and that the etymology and history of the 
word rent, and its use in French, give it claims not to be 
forfeited by Ricardo's misuse of it. The French rente includes 
the three subdivisions, fermage or farm rent, loyer or house 
rent, and interet. In German the word Zins is used much as 
I use rent, and the three subdivisions just named are called 
respectively Pachtzins, Miethzins, and Geldzins. A man who 
lives mainly from such sources is called in French a rentier, 
in German a Rentner, useful terms, for which we have no 
English equivalent, since " capitalist " is applied rather to one 
who is at work on his business than to one who has retired, 
and means rather an entrepreneur than a rentier. So we have 
to use some clumsy phrase like, " a man of independent 
means," or, "a private gentleman;" and in the Census of 
1 891 special directions had to be given that "persons follow- 
ing no profession, trade, or calling, but deriving their income 
from land, houses, dividends, or other private sources, should 
return themselves as, ' Living on their own means.' " 

Amid the many classifications of those who divide the 
national wealth, other than the one adopted above, four may 
be examined as specimens. Adam Smith, assuming rightly 
the accumulation of stock and the appropriation of land as 
prerequisites of civilization, makes three great orders of 
people, those who live by the rent of land, by the wages of 
labour, and by the profits of stock. By labour he means 
" productive labour," and holds that the revenue of all the 
other orders of society must be ultimately derived from the 
revenue of these three. 

Among the objections to this classification are the difficulty 
of separating productive labour from unproductive, as we 
have seen already (supra, pp. 10, 11) ; further (a much smaller 


objection when Adam Smith wrote), that no proper place is 
assigned for the revenue of merchants, manufacturers, and 
other great employers ; for he excludes any reward of their 
labour from the notion of profit, which is much the same as 
what Mill calls interest ; moreover, he sharply separates the 
rent of land from the interest of loans, a separation which, as 
we have seen, is, at least in the present day, very misleading. 

Mill, with his three classes of landowners, capitalists, and 
productive labourers receiving respectively, rent, profit, and 
wages, is hardly to be considered as making a new classifica- 
tion, only as giving that of Adam Smith's a little more 
precision, and thus developing its insufficiency. For he 
narrows rent to be a differential gain after the manner of 
Ricardo ; and he widens profit so as to include the three 
notions of interest (or the remuneration of abstinence), 
insurance (or the remuneration of risk), and wages of super- 
intendence (or the remuneration of exertion). 

Professor Walker takes another view from Adam Smith 
and Mill, rightly observing the inadequacy of the treatment 
of the gains of employers, and makes four classes instead 
of three, namely, the landlord receiving rent, the capitalist 
receiving interest, the employer or entrepreneur receiving 
profit, and the employed labourer receiving wages. 

But under our present circumstances such a classification 
is liable to mislead. The separation indeed of the interest 
of the capitalist from the profit of the employer is desirable, 
but not the separation of rent from interest, and the con- 
sequent bisection of the rentier class, which is very incon- 
venient. Also there is no proper place for a multitude of 
small farmers and independent artisans who do not work for 
wages, and who yet are not employers and can hardly be 
called entrepreneurs. 

:rth specimen of classification let us give that of 
Professor Marshall, who distributes the national dividend into 
-amines of labour, interest of capital, and producer's 
surplus or rent. None of the three parts correspond exactly 
with what we have called wages, profits, and rents. For 
»r Marshall's "earnings of Labour" include, besides 
wagf:^. a large portion f »f profit-., notably all earnings of 
man. ' . His"intere I " exi I idea a greal pari of profits, 

as j '1 on the other hand includes man 

If "produ< irplus" or "rent" excludes many rents, 

such as hou e-rent, interest of mi ad dividends of 

sfaarehol ind on the othei hand includes many dif- 

ifacl urers, merchant . and 

ould fall undei profit. 
Mar hal ification 


not so much in the nomenclature, for, as we have seen, this is 
inevitahle in any classification, but first, in drawing a broad 
line between rents and interest, an inconvenience which we 
have set forth at length ; and secondly, in dissolving the unity 
of the receipts from a business, so that, for example, the 
income of £5,000 which a managing owner gets from a factory, 
has to be mentally divided into two portions, earnings and 
interest, and probably into a third, namely, producer's surplus, 
instead of being all kept altogether under the common title of 
profits. And thus not merely is the rentier cut asunder, as in 
Professor Walker's classification, but also the entrepreneur. 

The student may perhaps ask, and justly, what is the use 
of such vague and general terms as wages, profits, and rents, 
which include under a common name revenues of so different 
a character as those of a London physician and an Indian 
coolie (wages), or as those of an Irish tenant farmer and a 
New York merchant (profits) ; or as those of a holder of 
Egyptian bonds, of an English landowner, of a Parisian 
house-proprietor, and of an Erie Railroad Shareholder (rents). 
The answer is, that although these general names tell us little 
about realities, and are a mere introduction to the real 
problems of distribution, they may serve us, if we duly appre- 
hend their real insignificance, as a useful introduction, show- 
ing us certain necessary characteristics of all revenue and of 
each of the three kinds in particular. If we know this we 
shall understand more easily the real historical forms of 
social organization. 

Pitfalls. (1) To make use of the abstract terms wages, 
profits, rents, interest, or others similar, and yet really to 
have in view some concrete and particular kind of revenue, 
as that of Irish landlords and their tenants, of Lancashire 
cotton-mill owners and their workpeople, of London bankers 
and those who borrow from them. In this manner many 
very local, particular, and transitory relations have been 
made to appear as general laws of distribution. 

(2) To avoid the real matters of importance, the great and 
necessary distinction of rich and poor, and the proper rela- 
tions of friendship and mutual support, and to pay attention 
instead to statistics of averages of wages, rents and profits, 
like a study of human nature based merely on observation 
of skeletons. 

Into both of these pitfalls it has been common for orthodox 
Political Economists to fall. 

It seems a simple rule of arithmetic that, given 
the annual produce of a country, the larger propor- 


tion falling to any one of the three sharing classes, 
whether to the receivers of profits, or of rents, or 
of wages, the less remains for the other two. But 
this simplicity is delusive. For as we have seen in 
the previous Book, the same goods have much 
greater value in private use to some people than to 
others ; and some portions of the same kind of 
goods greater value than other portions. Hence 
the more or less of goods may immediately depend 
on who gets them. Then again, the proportion in 
which the produce is divided one year, may affect 
the produce of another year. Too low wages may 
cause inefficient work, and a smaller absolute sum 
to be divided between rents and profits, which thus 
by taking too large a proportionate share get a 
smaller absolute share. Too high wages on the 
other hand, by fostering idleness and extravagance 
among the receivers, may cause them also by taking 
proportionately more to get absolutely less. In 
truth the moral dispositions and the social relations 
of the different classes in a civilized State, have the 
greatest influence on cost and produce ; and wealth 
and welfare cannot be treated as distinct. Thus it 
is a delusion to look on the annual -produce of a 
country as a cake of which the larger the*slices of 
other people, the smaller is mine ; for Jthe social 
cake, unlike that of the confectioner, varies in size 
according to the manner in which it is divided. 
Moderate and reasonable profits, rents and wages, 
I like moderate and reasonable prices, are for 
the genera] good. In each particular bargain 
indeed, or particular payment, there is an opposi- 


tion of interest and a danger of grasping at ex- 
orbitant profits, rents, wages, or prices. But then 
precisely the use of laws and institutions, and 
precisely the office of a humane and rational 
Government, is to intervene with anti-monopoly 
laws, factory laws, usury laws, homestead laws, and 
many other laws, to check this individual snatching 
at immediate and private advantage to the general 

So much on distribution in general. Now let 
us look at what is to be learnt in particular about 
profits, rents, and wages. 



The total annual receipts other than wages or 
rents are to be called the amount of profit and to be 
distinguished from the rate of profit ) which is the 
relation of such receipts to the total property 
employed, and which is generally expressed as a 
percentage. The distinction is necessary; for a man 
may receive a very high rate of profit, say 20 or 30 
per cent., and yet may be receiving a very small 
amount of profit, and a very small income. For as 
the amount of profit must, as a minimum, be enough 
to enable and induce a man to continue his business, 
the minimum rate of profit may be very high. For 
example, in Adam Smith's time a small grocer 
required some 40 or 50 per cent, on his small 
capital ; else he could not have lived and brought 
up a son with the necessary technical knowledge to 
continue the trade. But though receiving so high 
a rate, he only received a low total amount; whereas, 
on the other hand, in a vast rolling mill of our own 
day, a very low rate of profit will give the iron- 
master a very large income. \\ 1 say that in 
one case the earnings of management form a 


large proportion of the profits, and in the other 
•case a small proportion. 

Distinguish again from the general rate of profit 
made by a man on his capital, the rate made 
on each particular transaction. Obviously the 
oftener these transactions are repeated, the smaller 
is the rate of profit on each that is needed to 
produce a given annual rate of profit from the 
whole capital. And thus there can be great differ- 
ences in the rate of profit on the turnover as it is 
called, while the rate of profit on the capital may be 
exactly the same. 

This has been illustrated clearly by Professor Marshall, 
as follows : " Wholesale dealers, who buy and sell large 
quantities of produce in single transactions, and who are 
able to turn over their capital very rapidly, may make 
large fortunes though their average profits on the turnover 
are less than one per cent. ; and, in the extreme case of large 
Stock Exchange dealings, even when they are only a small 
fraction of one per cent. But a shipbuilder who has to put 
labour and material into the ship, and to provide a berth for 
it, a long while before it is ready for sale " must make on 
each sale a rate of profit many times higher than those 
wholesale dealers if he is to make the same rate on his 
capital. Again, in the textile industries, where " some firms 
buy raw material and turn out finished goods, while others 
confine themselves to spinning, to weaving, or to finishing: " 
if the rate of profit on the capital is to be equal, " the rate of 
profit on the turnover of one of the first class must be equal 
to the sum of the rates of profit of one of each of the three 
other classes. Again, the retail dealers' profit on the turnover 
is often only five or ten per cent, for commodities which are in 
general demand, ... so that while the sales are large, the 
necessary stocks are small, and the capital invested in them 
can be turned over very rapidly. . . . But a profit on the 
turnover of nearly a hundred per cent, is required to remu- 
nerate the retailer of some kinds of fancy goods which can 
be sold but slowly, of which varied stocks must be kept." 
{Principles, pp, 651, 652.) 


Proportional profits are the proportion of the 
total produce of industry that goes to employers 
as distinct from workmen. Where there are many 
peasants or handicraftsmen employing little or no 
hired labour, the term is of little use ; but it is 
otherwise where vast multitudes live by wages ; 
for then much of the welfare and peace of society 
depends on proportional profits being on an average 
at a reasonable level. 

Average profits can be struck wherever two 
people or more are making different profits. The 
phrase, indeed, is often used to express the general 
productivity of industry ; but this is not a matter 
of distribution but of production ; and the grounds 
of greater or less productivity of industry have been 
already explained in the chapters from the second 
to the sixth of the First Book. 

A more important matter is the distinction 
between real and nominal profits. Some obvious 
losses must obviously be deducted ; and the profit, 
for example, on each sale of goods that are liable 
quickly to go out of fashion or quickly to spoil (like 
ribbons, almanacs, fish, or flowers) must be made to 
r the loss on unsold or depreciated goods. But 
there are other less obvious deductions before we 
can ascertain real as opposed to nominal profit. 

First, there is the cost of technical education. 
If a business require much' labour or property to be 

i in learning it, this cost must be paid for out 
of the i ' • ipts of the busin< ss before the real profits 

koned. Thus, from the nominal profit 
an architect or engineer_ a sum must be deducted 


sufficient during an average lifetime to pay off the 
costs his parents were put to in giving him the 
needful training, or sufficient to enable him to bring 
up his son in the same business. Unless the average 
receipts in a particular business enable this cost to 
be defrayed, fewer young men will be enabled in the 
next generation to be brought up to it. In common 
accounts, however, no deduction of this kind is 
made, and profits may seem much higher than in 
reality they are. 

Secondly, we must deduct the cost of making a 
business known whether by advertising in news- 
papers and on placards, or by the decoration of 
shop fronts, of reception and waiting-rooms. 

Thirdly, we must deduct the cost of insurance 
against the risk of failure and ruin. How much, 
indeed, should be deducted is a matter of great 
complexity, because (a) failure and ruin mean such 
different things in different societies and different 
classes of the same society, according to the varieties 
of the law of debt ; (b) the relative estimate of 
slow and sure gains compared with great and 
uncertain, varies immensely with individuals, classes, 
nations, and times ; and (c) many risks are so com- 
plicated that all actuarial calculations are impos- 

It can even happen, owing to " the overwhelming conceit 
which the greater part of men have of their own abilities," 
and " their absurd presumption in their own good fortune " 
(Adam Smith), that the average profits in some hazardous 
trades are " absurdly" low. Indeed it has been said that at 
one period the Canadian timber trade and the Cornish tin 
and copper mining gave on an average no profits, but were 
carried on at a loss. And the same has been said of silver 


mining in the United States. Only let us well remember 
that in order to reach the real profits of a reasonable man, 
we have not to deduct from his nominal profits the large sum 
needful to insure against the losses of reckless folly. For 
while reckless speculators may be reducing the average 
profits of a trade to very little, reasonable traders may all 
the time be so comparatively secure against failure, that 
under the head of insurance only a small deduction is 
necessary to reduce their normal to their real profits. Here, 
as elsewhere, averages are a likely source of delusion. 

Distinct from insurance against loss, which is to 
be treated as a deduction before reckoning up net 
income, there is the compensation which that 
income ought to give for any unpleasantness of 
the occupation, that of a butcher, for example, 
which may require the minimum rate or minimum 
amount of profit to be higher than otherwise. 
Conversely, a very low minimum of profits may 
prevail where the occupation is not unpleasant, and 
where the independent position of working as one's 
own master is preferred to the higher earnings in 
another's service. Thus small shopkeepers may 
earn much less as profits than they might as wages 
(in Germany the profits of shopkeepers were said at 
one time to be very low), and yet knowing this they 
may all the while prefer to reign in penury than 
serve in plenty. 

One notable question touching profits yet remains 
to be answered, how far we can speak of a general 
or usual or current rate of profit, in the that 

actually within a given region there is an ascertain- 
able rate not of nominal but of real profits, the Same 
for almost every kind of business, and which any 
one may reasonably expect to get. The assertion 


that for every country there is such a rate is called 
the doctrine of the equality of profits or of the existence 
of a normal rate of profit. 

This is quite distinct from an average rate. An average, 
whether we can in fact find it out or not, is a mere arithmetical 
statement of pre-existing figures and tells us nothing about 
causes. There is thus obviously, for any period we like, an 
average rate of profit for any number of people we like, for 
example, an average rate of profit during the last ten years 
for Old Sarum,for London, for the United States, for Europe, 
for the whole world. We can't find it, except perhaps in the 
first case, but there it is. Those, however, who assert a 
general rate of profit are not simply uttering an arithmetical 
truism, but asserting the existence of a cause equalizing 
profits, which is quite another thing. 

Adam Smith held that in the same neighbour- 
hood, after making allowance for unusual unpleasant- 
ness or risk, there was an ordinary or usual rate of 
profit, assuming (a) that the employments were well 
known and long established in the neighbourhood ; 
(b) that the employments were in their ordinary or 
natural state, that is, not suffering any unusual 
excess or defect of demand or supply ; (c) that they 
were the principal employment of those who occupied 
them, that is, with no considerable supplement of 
income from elsewhere ; and (d) that no laws or 
institutions or combinations put any obstacle in the 
way of changing from one business to another or 
entering one rather than another. If all these four 
conditions were fulfilled, he held that there was an 
equality of profits in a neighbourhood. And if we 
add a fifth condition (e) that there be little or no 
hereditary attachment to any particular trade, or 
aversion to change, then his doctrine is true. For 
in a neighbourhood or society so simple, small, and 


stable that every one's past profits are known and 
future profits easily reckoned, the hatters cannot be 
earning much higher profits than the tailors, because 
some of the tailors or their sons would have already 
become hatters, there being no legal or religious 
obstacle to the change, no sentiments or combina- 
tions in the way. But plainly the case where all 
these many conditions are fulfilled is exceptional. 
Even in Adam Smith's time the conditions were 
only imperfectly fulfilled in the small and sober 
towns of Great Britain, at a time that was precisely 
the most favourable for their fulfilment, namely, 
the interval between the legal and corporative 
organization of trade that was decaying, and the 
new period that was beginning of unregulated > 
uncertain, speculative, and world-wide trade, of 
progressive mechanics and progressive chemistry, 
about to render the management of industry so 
complicated and so difficult. 

On this small foundation laid by Adam Smith, succeeding 

economists, Kicardo in particular, raised a vast structure, 

telling us that the profits in different employments in a whole 

country, cither were equal or were to be assumed as equal; 

and working out in elaborate detail the consequences of this 

in* . '1 his error is now scarcely maintained in its crude 

form, \>< ing obviously in contradiction with t he following 

facts: i i) that to move capital is very difficult in the ca 

many employments, machinery and buildings being in general 

ible to a particular employment, {b) That tech- 

nil al kn< and skill is in many cases quite tin i able 

to anotl ad rar< ly trail ferable without great loss. 

Boil Eacts a and b have become more importanl by the 

growing te machinery and the growing need "I 

allzed technical education, (c) Thatth< actually 

i,t men ev< d in the .him- bu u bo* tin 

difli 1 1 Qtial advani 
to the lav. ot in' i' to \ ariety oi i 


capacities, and to other causes as set forth in the chapter on 

More modern economists have therefore presented the 
doctrine of equality of profits in a more reasonable form. 
Instead of actual equality, a general tendency to equality is 
asserted, or an equality of expectation of profits; and some- 
times, instead of equality being applied to a whole country, 
certain non-competing groups, as Cairnes called them, are 
recognized, and equality of profit only asserted within each 
group, not between one group and another. In this way the 
incongruity is escaped of supposing a parent gravely to 
compare the respective rate of profit among the cotton 
spinners and the costermongers, and to start his son in the 
most profitable of the two. 

But even in this amended form, nay, even as modified in 
the careful restatements of Professor Marshall, the theory of 
an equality of profits is to be rejected. For among the other 
assumptions on which it rests, two of the chief are that there 
exists a knowledge of the profits of different trades and 
employments sufficient to enable those who have new capital 
and young entrepreneurs under their direction, to direct them 
to the most profitable trades ; and secondly, that combina- 
tions and monopolies are not strong enough to keep out these 
new incomers. But both assumptions are in contradiction 
with the facts of modern business. To ascertain profits amid 
the changes, chances, and multitudinous enterprises of our 
day, is very difficult ; the amount is often kept a profound 
secret : if low, to keep off creditors : if high, to keep off 
competitors or claims of workmen for higher wages ; many 
people do not themselves know their own profits ; most have 
enough to do with their own business without observing that 
of others ; and the general fact is that people in one trade 
know little or nothing of the conditions of other trades. And 
even if the past were known, the future could not be judged 
from the past. " The changes in production and the condition 
of trades, in international competition, and in prices, the 
effects of speculation, fluctuations of credit, and commercial 
crises, of scarce and abundant seasons, wars and other 
political events, new discoveries and inventions, would upset 
all these calculations." (Cliffe Leslie, Essays, p. 49.) Indeed, 
the fluctuations of many prices through speculation have 
made the gains of many dealers as uncertain as a lottery. 
Moreover, the history of commercial crises, the many failures 
and bankruptcies, the much foolish lending and misdirection 
of labour and property, all noticed in the tenth chapter of the 
previous Book, show that instead of the sagacious and calm 
choice of the most profitable employment such as is imagined 


by economists, there is a blind rushing after wealth by much 
of the mercantile world, and foolish alternations of optimism 
and panic. Thus the increase of credit increases rather than 
diminishes the inequalities of profits, and banks do not and 
cannot, as supposed, direct new wealth and young men into 
the most profitable channels, so as to effect an equality. As 
Cliffe Leslie well says: "So long as goods are sold only for 
cash ... as soon as the sale is effected, the amount of the 
seller's profit is certain. But ... a promised payment may 
never be made, so that after parting with his goods the pro- 
ducer's profit still remains doubtful." (Essays, p. 225.) 

Nor let it be urged against us that men and things, labour 
and capital, do in fact pass from one employment to another 
in the hope of greater gain, especially young men and new 
capital. Indeed they do ; and this rush after higher profits 
or easier conditions of life is one of the prime movers in 
history. Doubtless also this is a force tending to equalize all 
profits and all wages ; and doubtless were it the only force or 
tendency, then "in the long run " and as an ultimate effect, 
an •' equilibrium " would be reached, and wages and profits 
be "normal.'' And the fascination of this hypothesis and of 
the calculations that can be made if it is true, account for the 
persistent belief in it. But in reality it is not true ; that 
tendency is not the only force ; much rather the perpetual 
liability of industry to changes in productiveness, the 
perpetual liability of men to error and ignorance, the per- 
petual tendency of men to coalesce in combinations, are 
all forces acting in another direction ; so that if we extend 
our " long run " ever so far, we shall not be any nearer 
reaching equilibrium than now, and remain as distant as ever 
from that hypothetical fairyland. Thus we ought to give up 
any search for " true " or " long-period " or " normal " levels 
of prices, wages, and profits, and any search for any " causes 
that determioe in the long run" any such level. For our 
business is with reality, not with imagination. 

The migrations, then, of population and capital may 

indicate inequality of wages and profit, but do not remove 

it. Sometio n, Ser accidens, they increase it. For not 

seldom when extraordinary profits are unveiled, the opportu- 

tor making them i ty, and tin; rush of 

men and capita] only meets with disappointment, and 

can barel} be kept going; whiles id 1 tperience 

to many emigrants thai they would have done 

better had they stayed ;<t home 

Th< imption, thai monopolies and combina- 

1 unimportant as to be able i.» l"- I- it out <*i the 

tolei abl option in Ri< ardo's 


time, is intolerable now. And precisely in America, where 
the old obstacles of love of home, and of old ways, and of 
father's trade, are least effective, and the legal obstacles to 
change of trade are scarce remembered, and where most 
prevails the " self-reliance, independence, deliberate choice 
and forethought" in business, to which Professor Marshall 
has given the strange name of "Economic Freedom " (Prin- 
ciples, pp. 5 — 8) : there also we see the country covered with a 
network of combinations, all sorts of products monopolized, 
and any tendency to equality of profits overcome by counter- 

Our conclusion then is that of Cliffe Leslie, that 
there is no general or current rate of profit, nor 
again (as we shall prove presently) of wages ; and 
that the doctrine of the equality of profits, even in 
amended forms, like the one adopted by Cairnes, is 
illusory. It follows that the elaborate theories built 
up on that doctrine and on the sister doctrine of 
wages, such as the Ricardian theory of rent and of 
the transference of indirect taxes to the consumer, 
and the theory of normal or long-period prices, as 
distinct from market prices, and as the result of the 
producers getting their normal profits and normal 
wages, fall, all of them, to the ground ; and the 
teaching of economic science is made both shorter 
and clearer. 



Receipts for property as such are to be called rents, 
as we have already seen, and are to be distinguished 
from wages or receipts for labour as such, and from 
profits or receipts from combined property and 

Among the different forms of rents in modern 
England the following are conspicuous : (i) agri- 
cultural rents paid by farmers ; (2) mining royalties 
paid by lessees of mines ; (3) ground-rents of all 
kinds of buildings ; (4) house rents ; (5) rents of 
shops and factories ; (6) annuities, rent charges and 
similar payments made, partly by Government,, 
partly by insurance companies, partly by other 
private individuals ; (7) interest from Government 
stock or from loans to local authorities ; (8) interest 
from private loans, notably from bonds, mortgages, 
and debentures; (9) dividends from shares in joint- 
stock companies. 

All these receipts have an essential similarity in 
bein iptfl simply for property, and thus must be 

:i a common name, rents, though in ordinary 
conversation they have different Dame 9 according 
to their sources or legal character. 


Regarding No. 9, the fact that dividends received by the 
shareholders of joint-stock companies are practically of the 
character of interest rather than profit is rightly urged by 
Professor Sidgwick. (Polit. Econ. pp. 257, 258.) No doubt 
legally the shareholders are not creditors, and though sleep- 
ing partners, are still partners. But in this case, as in many 
others, the legal aspect is not the economic. For practically, 
and therefore economically, the property of the shareholders 
is out of their hands, and in the hands of others, and the 
returns they receive from it is of the nature, not of profit to 
them, but of rent. That these returns are variable does not 
alter the question ; for some other rents are variable, like 
uncommuted tithes ; and the difference between rents and 
profits is not that the one is a fixed and the other a variable 
sum, though this is usual, but that the one is for property 
alone, and the other for labour and property combined. 

As in the case of profits, so in the case of rents 
we must distinguish amount from rate. The amount 
of a man's rents is the total annual sum received in 
this form from any of the sources given above ; the 
rate of rent, or to give it the usual name, the rate of 
interest, is the relation of such receipts to the total 
property from which they are derived, and is gener- 
ally expressed as a percentage. Thus when an 
Austrian Jew lends a peasant 500 florins, and gets 
back annually, one way or another, 200 florins, we 
say the rate of interest in this case is forty per cent. 
When a man having invested £2,000 in English 
Great Western Railway stock some years ago, while 
the price was £80 for £100 share, now receives a 
dividend of seven per cent., we say he makes eight 
and three quarters per cent, on his investment. 
When, as at one time in England, well-situated 
estates can be sold at over thirty years' purchase, 
that is, at over thirty times the annual rent, we 
say in such cases that if you invest in land you 

RENTS. 355 

can only get about three per cent, on your invest- 

There is indeed, as Professor Sidgwick (Polit. Econ. pp. 258, 
seq.) has pointed out, a complication in determining the relation 
of the interest to the principal, that is, the relation of the 
annual receipts to the total property, because the exchange- 
value of that property greatly depends on those receipts. Thus 
in the second case given above, if Great Western stock can 
now be sold at £140, that man's property in one sense can be 
said to amount not merely to the £2,000 he originally paid for 
the stock, nor to the £2,500 nominal stock which he procured, 
"but to the £3,500 for which that stock can now be sold ; and 
in this case the rate of interest he is receiving is only five per 
cent. Again, in the third case, the buyer of the estate may 
only get three per cent., but the previous holder, receiving 
exactly the same rent, yet having inherited the property from 
his father, who bought it say at half the present price, was 
in one sense receiving six per cent. And conversely, at 
the present time much land is bought at sums that allow the 
purchaser from three to five per cent, on his outlay, with the 
rents as they are ; but the seller, or his father, having bought 
at a much higher sum, was only receiving just before the sale 
from one to three per cent, on his outlay. For most purposes 
it is simplest to reckon the rate of interest as the relation of 
the annual yield of a property, not to the past, but to the 
present exchange-value of that property. 

We must distinguish nominal rents from real 
rents. To ascertain the latter we must make 
various deductions, of which the chief in the case 
of specific property let on lease, are expenses of 
repairs, and in the case of generic property out 
on loan, insurance against losing the principal. 
Both deductions often are very difficult to reckon; 
in particular that for risk (for false interest in Pro- 
fessor Walker's phrase) ; on which matter we can 
rcf<r to what has already been said on the diffi- 
culties of a similar deduction in reckoning real 


In any market, where there is a current rate of interest, 
the dealers in that market do in fact make a reckoning as best 
they can, and deduct insurance. So on the London Stock 
Exchange many investments that give precisely the same 
interest are to be bought at very different sums. But the 
reckoning has not proved very correct ; and probably extra- 
hazardous investments so allure one set of people by high 
interest, and extra-safe investment so allure another set of 
people by their security, that both are rather overvalued from 
an actuary's point of view, and the intermediate investments 

Having seen that it is a mistake to speak of a 
general or current rate of profits, and of equality of 
profits, we may be tempted rashly to conclude that 
the case is the same with the rate of interest. It is 
indeed the same if we imagine a single rate for all 
leases and loans all over Great Britain, or even for 
loans only. For multitudes of such transactions are 
shrouded in secrecy, in many there is the pressure 
of necessity, the weakness of simplicity, the blind- 
ness of the rake's progress towards his ruin. And 
although secrecy, pressure, and folly are most 
common in uncommercial credit, they are not 
unknown in commercial credit ; and to suppose 
that after reasonable allowance has been made for 
variety in the risk of repayment, all traders in the 
kingdom can borrow at the same rate of interest 
or discount, is an idle supposition. Nevertheless, 
keeping strictly to what can be known, and avoiding 
the conjectural, we can speak, not indeed of the 
current rate of interest, but of current rates. 

The most important of such rates is now (unlike 
the case only one century ago) the rate on Stock 
Exchange securities. The nature of these has been 
sufficiently explained in the tenth chapter of the 

RENTS. 357 

previous Book. The point here to notice is that in 
•each commercial centre at any given time there is 
-a current rate of interest for such securities, and 
that their price will be exactly what will give the 
•buyer that current rate with something in addition 
if there is any serious risk to be insured against. 
Hence if the four per cent, debentures of a large 
and prosperous railway can be bought at par, that 
is, at £100 for a bond of £100, we can say the rate 
of interest of securities in that stock exchange is four 
per cent. If, ceteris paribus, the same debentures can 
be sold for £120 each, we can say that the rate is 
three and a half per cent. ; but if they can be bought 
for as little as £80, we say the rate is five per cent. 

Special reasons may cause particular stocks to have some- 
thing of a scarcity value, like the English Funds in which 
trustees have been by law compelled to invest. Hence we 
may say that the interest on Consols has been and is below 
the current rate of interest on securities in the London stock 

Another current rate of interest is what is called 
the rate of discount, sufficiently explained in the 
ninth chapter of the previous Book, and which 
depends on the relations of bankers and traders, 
and varies quite independently of the current rate 
of interest on securities. 

Other forms of lending have also current rates 
of their own, notably the lending on mortgage as 
conducted by banks, lending on deposit, and lending 
on ships or cargo. As far as there is a market in 
these cases, it is distinct from the markets for other 
lands of loans, nnd the rate of interest is distinct; 
while as far as there is no market, there is no 


current rate of interest, only a heap of separate 
rates. Further, in a commercial country, where 
land and house property are so frequently sold, that 
there is a market for each of them, we can speak of 
a current rate of interest on investments in land or 
on investments in house property, or what comes 
to the same thing, we can say that land or houses 
are selling in their respective markets at so many 
years' purchase. 

Pitfall. To speak of the rate of interest in a country, and 
to compare it with that of another country or another period, 
without specifying what particular rate of interest is meant. 
An explanation of this mistake is that in former and less 
commercial times, the most conspicuous and perhaps the only 
proper rate of interest was that on loans among traders. A 
further ground of the mistake is that the law used to fix a 
maximum rate of interest, and the fact of the existence of one 
legal rate of interest accustomed people to the notion of one 
rate rather than of several. 

What are the causes of the particular rates of 
interest current at given times in given commercial 
centres ? 

Rates of interest, like prices in other markets, 
are determined immediately by demand and supply ; 
and where there are great fluctuations in the supply 
of loans or in the demand for them, we must expect 
great fluctuations in the rate of interest for them. 
This is notably the case in the form of lending 
called bill-discounting : and the rate of discount in 
London has been known to vary by more than five 
per cent, within a short interval, while the rate of 
interest on Stock Exchange securities remained the 

RENTS. 359 

But we are now concerned with more permanent 
grounds of more permanent rates of interest, espe- 
cially of the rate of interest yielded by securities. 
These more permanent grounds are as follows : 

First, the productivity of industry. If the natural 
resources of the country, the number of the inhabi- 
tants, and their proficiency in the arts, are all 
favourable to production, current rates of interest 
may be much higher than otherwise, for the simple 
reason that people will give a great deal for the use 
of property, if a great deal is to be made by its use. 
The great productivity of industry in certain stages 
of colonial countries, where great natural resources 
and unexhausted soil are combined with the arts 
and experience of long-settled countries, is one of 
the grounds why rates of interest are so high in 
such countries, as in New England at the beginning 
of the nineteenth century, and in the Western States 
at the end. Obviously indeed the current rate in 
such cases must be somewhat less than the hoped 
for profit to be made by it ; or there would be no 
motive to borrow. 

Secondly, the desire of revenue in the future 
rather than present enjoyment. Sometimes this is 
called the desire to save; and where such desire is 
very strong, the accumulation of means of pro- 
duction may be great compared with the number of 
people who engage in production, and the use of 
property can be got in some loan-markets so easily, 
that little is paid for its use. Hence the low rates 
of interest in Holland in tin- eighteenth century, 
and in London now. 


Thirdly, the desire of living from rents rather 
than from wages or from profits. The sooner men 
of business desire to retire from trade, the greater 
eagerness with which the life of an annuitant is 
sought after, the greater the numbers of the invest- 
ing compared with the enterprising classes, the 
lower will be the rate at which, ceteris paribus, the 
entrepreneurs will be able to secure the administra- 
tion of the property of the investors. The low rates 
of interest in Spain in the eighteenth century, and 
in London now, are perhaps in part to be attributed 
io the great demand for rents. 

Fourthly, the dispositions inducing borrowing for 
non-industrial purposes. For example, the condi- 
tions of land tenure, of successions to property and 
of taxation, may make borrowing by landowners a 
necessity (as seen in the chapter on uncommercial 
credit). Again the conditions of society requiring 
great expenditure at certain times, may require 
indebtedness, like that of the Hindus for weddings. 
Again, a great difference may be made by the 
moral conditions of society in the demand for loans 
for dissipation : a demand that in the Rome of 
Julius Caesar was so great as to be a factor seriously 
affecting rates of interest, but in traditional Scotland 
and Holland, so little as to be a mere quantite negli- 
geable, not worth attending to. 

Fifthly, the political conditions favourable or 
unfavourable to the borrowing by Governments of 
vast sums, especially for non-industrial purposes. 
The sum annually payable at present by central 
and local Governments on account of loans for 

RENTS. 361 

defensive, ornamental, or educational purposes, is 
probably little short of three hundred million pounds, 
and the principal of the debt probably over six 
thousand millions (£6,000,000,000). The direction 
of such vast sums, the greater part within one half 
century, towards such purposes, must have tended 
to raise rates of interest, especially on securities; 
though something must be taken off for the counter- 
tendency due to the fact, that wasteful military 
expenditure and municipal display have done some 
injury to the productivity of industry. 

The action of these five causes is very com- 
plicated ; for they partly assist, partly counteract 
each other, and do not affect every kind of rate of 
interest alike. Hence it is impossible to tell shortly 
and certainly why, for example, the current rate of 
interest on securities in the London market is just 
what it is, no more and no less. The inquiry is 
very complicated, the results uncertain. But then 
happily no one is any the worse for not having the 
questions answered. 

Observe that just as one market price gives different 
advantages to different buyers and sellers, so one current rate 
of interest gives different advantages to different payers and 
vers. The skilful or fortunate entrepreneur borrows on 
the same security in the same market at an equal rate with 
the dull and unfortunate, though the one will make by the 
loan perhaps twenty per cent, over and above what he pays 
for it, and the othex not one per cent. Again, the pnvate 

.instances of two rentier!; may be such, that a similar rate, 
say five per cent., 1 mlar sum, say £5,<xx>, may enable 

of the two, being an invalid, to live En comfort, but be 

only just enough to have tempted the other, being an active 

. • 1 ■•ire from business. The Invalid mm t have put 
up with two pes cent. rather than not Inve I hit property; 


but the active man would not have put up with even four 
and three quarters per cent., but would have continued in 

Another question is how far rates of interest are 
uniform throughout the world. Obviously in the 
vast region of the unknown, in the field of hidden 
lending, there can be no current rate or uniformity 
even in the smallest district, much less in a province 
or a country, or the world. But where there are 
markets and current rates of interest well known to 
commercial men, we ask if it is possible that in any 
one market the rate of interest can be for any con- 
siderable time considerably higher than in any 
other ? Is there not, at any rate in our own day, 
with means of information so ready and of com- 
munication so rapid, only one great cosmopolitan 
market for loans, and only one rate of interest for 
the civilized world ? For though the productivity 
of industry, the desire of future revenue, the desire 
of living the life of a rentier, the dispositions that 
make men borrow for non-industrial purposes, and 
political conditions — that is, all the more permanent 
grounds of permanent rates of interest — differ much 
in different countries and places, this in itself need 
not be in the way of a common cosmopolitan rate 
of interest, no more than in any market the varying 
circumstances of the buyers and sellers hinder the 
attainment of a common market price. 

Undoubtedly however there is no such common 
rate throughout the world, or even common rates 
for similar kinds of loans. " For a long term of 
years," Professor Walker observes, "the loan of 

RENTS. 363 

capital could be obtained upon what was locally 
regarded as approved security, for four per cent, in 
London as freely as for six per cent, in New York, 
or eight per cent, in Chicago, or twelve per cent, in 
Iowa or Kansas." (Polit. Econ. pp. 230, 231.) The 
average rate of discount is higher in Bombay and 
Calcutta, even in towns in Scotland, than in London, 
which is in such intimate connection with them all. 
And year after year a considerable difference is 
maintained in the average rate of discount in Berlin 
compared with St. Petersburg, Paris compared with 
Madrid, Frankfurt compared with Genoa. And 
between different markets for land, similar striking 
differences are to be seen in the number of years' 
purchase for which it will sell. 

The ground for such diversities is clear if we 
only remember the simple truth that in order to 
equalize such various rates of interest, men and 
property must pass from the one place to the other, 
and that such a passage always occasions some 
cost, sometimes great cost, and besides is often 
checked by disinclination. Even those who purchase 
securities on a stock exchange prefer, if possible, 
an investment close at hand where the language, 
manners, and above all, the law is familiar to them ; 
while those who wish to control or superintend 
their property must have that property near to 
them. And bankers who have so much to do with 
the direction of national savings, direct them by 
preference or necessity to where they can have 
some personal knowledge of those who use them. 
The bankers of London if they are to gain the 


advantage of the high rate of discount prevailing 
in San Francisco or Montevideo, or even in Lisbon 
or Genoa, must set up business in these towns 
and rather than migrate with their persons or their 
capital abroad, they prefer to put up with low 
interest at home. 

But though diversities of rates of interest are 
not equalized by the transfer of men and things to 
where they are higher, this transfer is frequent, as 
in old times when Hanseatic and Italian agents 
were scattered over Europe (of which our " Lombard 
Street " is a memorial), and as in our own time 
when English financial agents, and in a lesser 
degree German, Belgian, Dutch, and French, are 
scattered over the world, and remit home vast sums 
as interest of all sorts of loans and investments 
made by the property owners of these countries in 
other countries where rates of interest are higher. 

After the peace of 181 5 great sums were sent out of 
England, first to Spanish America, then to Spain and Portugal, 
then to North America, then to make French, Indian, and 
German railways. In the last few years immense sums have 
been sent to Australasia, South Africa, and Argentina. 

Pitfall. To think because such investments are expressed 
in terms of money, that money is what is invested, and that 
a high rate of discount attracts gold (or silver, as the case 
may be), till general prices are affected and rise. In reality, 
as already explained, it is precisely money that cannot be 
invested. (Supra, p. 301.) And if high discount attracted gold, 
we could never have got all that heap of gold from California 
and Australasia, in both of which the average rate of discount 
was for years double or more than double what it was in 
London. This error is of the same character as those 
mentioned in the previous Book, pp. 293, 294 and pp. 313, 314. 

One point yet remains of the general discussion 
on rents, whether we can make any generalizations 

RENTS. 365 

about their historical course, in particular whether 
there is a tendency for the interest on loans to be 
lower, for the price of securities to grow higher, for 
land to be sold at a larger number of years' purchase. 
Probably, if we are duly impressed with the com- 
plicated causes on which such rates and prices 
depend, we shall be justly inclined to doubt whether 
any evidence is forthcoming sufficient to justify any 
sweeping historical statements concerning them. 

Nevertheless the decline of the rates of interest is con- 
fidently maintained by some economists, or what in their 
language means much the same thing, the tendency of profits 
to a minimum. And they seem justified by two facts, the 
undoubted decline during the present century of rates of 
interest in the United States and other colonial countries, and 
the undoubted decline of the rate on commercial loans in 
Europe from the end of the middle ages to the eighteenth 
century. But both facts can be explained without supposing 
the alleged tendency to decline. In America the exceptional 
high profits made when a certain density of population had 
been reached and all the accumulated arts of centuries were 
applied to the choicest lands and best situations and richest 
mines and finest forests of a new country ; such profits made 
possible a very high rate of interest on mortgage and on 
commercial lending. By the action of the law of diminishing 
returns such exceptional advantages gradually pass away, and 
the average return to industry, that secular equilibrium in the 
condition of civilized man already alluded to (supra, pp. 54. 
83) is reached. Thus we may confidently prophesy that 
within the next fifty years the rates of interest in the States 
of Dakota and Buenos Ayres will decline; but that after that 
they will have a tendency to go on declining is an assertion 
with DO sufficient evidence to back it. 

Nor will the second fact avail to support it any more than 

the first. True that in the middle ages the customary rate of 

among traders was ten pei cent.; that when 3 1 1 

r£ interest was first fixed, it was fixe] (under Henry VIII.) 

1 per cent.; that it was . reduced to eight, 

six, and finally in the eighteenth century to live per cent.; 

and that the market r below it. Bui If this 

indicates the alleged tendency \ line, what is Indicated 

by the fact that in the eighteenth century the apparent 


decline was arrested, and that in many countries of Europe 
during the last 90 years the average rates of interest have 
been higher than during the go years that went before ? 
Besides the seemingly high rate in those early times is 
illusory. The so-called mediaeval rate of interest is no 
expression of the average return to holders of property, of 
the average rent from property, but only of the rate for com- 
paratively small loans, involving trouble and possibly dis- 
credit and risk, and made to traders whose profits were very 
high — twenty per cent, was considered customary — this 
height being due, partly to the absence of competition, partly 
to the large proportion of profit to be reckoned as earnings of 
management, and perhaps partly mere insurance against 
risk ; but not due, like the colonial profits, to any combination 
of favourable natural conditions and high industrial skill and 



Receipts for labour as such are to be called wages. 
The term in so wide and general a sense is capable 
of many subdivisions. First, taking as the ground 
of division the nature of the work, distinguish : 
(A) Industrial wages when the end of the work is 
production ; subdivisible into wages of labour in 
{a) agriculture, (b) mining, (c) fishing, (d) manu- 
factures, (e) carrying, (/) commerce ; or, as an 
alternative subdivision, into labour (a) in farms and 
gardens, (b) in mines and quarries, (c) in mills, 
factories, and workshops, (d) in boats or aboard 
ships, (e) on roads or railways, (/) in shops and ware- 
houses. (B) Non-industrial wages when production 
is not the end of the work; subdivisible into wages of 
labour of those engaged (a) in ministering to the 
higher or greater wants of man, in the spheres of 
religion, science, literature, art, and medicine; (b) in 
performing political functions of any kind, and thus 
the highest as well as the lowest legal, military, 
naval, or civil employment ; (c) in ministering to 
the lesser wants of man, or to his mere pleasures. 

St.- ing, many of those engaged in carrying (the 

I really belong to the oon-indu trial group; 

■ad many dom< rvants to the Industrial, as explained 

supra, \). ii. 


Secondly, taking as the ground of division the 
form in which wages are received, distinguish time- 
wages, or so much received for a certain time spent 
in labour, from piece-wages, or so much received for 
a certain quantity of work done. 

Professor Marshall, observing that wages by the piece are 
by no means always a test of efficiency, because the employer 
may provide better or worse implements or materials, suggests 
the word efficiency wages to signify what is paid for a certain 
amount of efficiency, that is, for a task of a certain severity- 
(Principles, p. 574.) 

Another distinction is that of payment in currency 
and payments in goods, and a third, akin to it, the 
distinction of definite and indefinite wages. Thus 
where board or lodging or garden ground is given, 
or rights of common pasture, of cutting fire-wood,, 
turf, or timber, or free haulage of timber, stone, or 
coals, the payment for labour is indefinite. And 
where, as in many cases, the payments or perquisites, 
have no fixed relation to the work done, but vary 
with the needs of the family, it becomes doubly 
difficult to reckon how much any one receives ; for 
it is a fluctuating quantity, like the rations of well 
cared for slaves, or — a very different example — like 
the military, legal, medical, and educational pro- 
vision, as well as insurance against industrial risks, 
which was the quid pro quo given by the mediaeval 
lord of the manor for the task-work of his villeins. 

In common language the word wages is often confined 
to definite payments in currency, and does not include 
payments in kind or any indefinite payments ; and again is 
often confined to payments of lower domestics and lower 
work-people, while some other word like salary or fee is used 
for payments to those in higher positions. But one general 
term being required in economics, wages seems the best term. 

WAGES. 369 

The amount of wages is the sum of the annual 
receipts of a man or his family for labour as such. 
The rate of wages is the sum received for a definite 
amount of labour measured by the time spent in 
labouring or by the quantity of measurable work 
done. Proportional wages are the receipts of work- 
men compared in their magnitude with the receipts 
of their employers. They are sometimes expressed 
as the share of the produce that falls to the workmen 
as distinct from the masters. 

Observe that amount and rate of wages mean very different 
things. Thus you may be paid at the rate of 30s. a week and 
yet the amount of your wages, that is, your income in the 
shape of wages, may be less than mine, though I am paid at 
the rate of only 15s. a week, because you work only 25 weeks 
in the year, whereas I work uninterruptedly. Thus, again, a 
boy and man may earn the same rate of wages per piece, 
but the man earn double the amount the boy earns, because 
working double as fast. 

The notion of proportional wages is inapplicable in many 
cases, like that of domestic servants, where there is no produce 
to divide. Where applicable, then obviously, other things 
being the same, the more or the less the men get, the less or the 
more will the masters get. But then other things are not the 
same, and, as we have seen in the first chapter of this Book, 
the produce itself may vary according to the manner of its 
division. In particular, low wages may cause work to be 
done so slowly and so badly, that the private costs of pro- 
duction of the employer would be less if he paid more. This 
is sometimes called the distinction between real and nominal 
cost of labour; and if we adopted Professor Marshall's phrase 
of efficiency wages, we could say that in such a case the 
employer, because paying too low time-wages or pieec-w. 
paying too high efficiency wages. 

In another way wages may often 1" raised without any 

to the employer by a more rational mode "1 payment, 
notably by payments in kind and various perqui it< ; foi in 

many <:a~.<-s, notably tl m|>aiii<s and I 

empl ; . food, fuel, recreate »n, 

.ind other thing 1 lor t heii worl pe< iple Gat 

than these work-people can provide for themselves^ 


It is true that by what is called the truck system, such kind 
of payments may be made the means of oppression and fraud; 
but the abuse does not remove the use. 

Finally, by reducing their payments to the rentier class it 
is obvious that the entrepreneur class will have in hand a 
larger dividend to be shared between themselves and their 
work-people ; though whether this reduction can be made or 
ought to be made is not so obvious. 

The distinction between real and nominal wages 
is important, but not quite ciear. If we say that 
nominal wages represent a man's nominal receipts, 
and real wages his real economic situation, we are 
likely to forget that that situation depends not 
merely upon his revenue, but also upon his social 
and domestic relations and other such goods, which 
can ill be put under the title of wages. On the 
other hand, if we say that nominal wages are the 
shillings a man receives, and real wages, what he 
can get with the shillings, we are likely to forget 
that his real revenue depends not simply on the 
exchange-value of the shillings, but also on several 
other things. To avoid on either side such forget- 
fulness, let us take a middle course, and say that in 
comparing definite nominal rates of w r ages (not con- 
ditions of welfare, be it well observed), we must 
take into account, if we wish to ascertain the real 
amount of each man's wages, the following circum- 
stances : 

First, the value in private use of the definite 
goods given him as wages or of the goods that he 
can purchase with definite money wages. For the 
point is not the general exchange-value of money, 
but the exchange-value of the particular goods that 
are of use to the particular receivers of the wages. 

WAGES. 371 

Thus if pianos fall in price by one half, then, ceteris 
paribus, the real wages of the carpenters and masons 
in London would be scarce affected, whereas they 
would be affected in Rio de Janeiro where every 
artisan has a piano. And the great variations in 
the prices of the objects of workmen's consumption 
according to time and place, make all reckoning in 
these matters very difficult. 

Secondly, the average duration in every year of 
the time passed without work, whether the inter- 
ruption be due to the seasons, or to accidents, 
or to holidays, or to strikes, or to slackness of 
trade. Many statistics of wages are rendered of 
little use by the neglect to attend to this circum- 

Thirdly, the average duration of the working life. 
This varies much among different trades and classes. 
The working life of a worker in lead is said to be 
shorter by a fourth than that of a worker in tin. If 
this is so, and if the costs of technical education are 
the same in each case, plainly the same nominal 
rate of wages must have deducted from it a sum 
larger by a fourth in the case of the workers in lead, 
in order to repay these costs, than in the case of the 
workers in tin. 

Fourthly, the cost of technical education. The 
deduction under this head from the wages of 
common Labour! is next to nothing; for some kinds 
of labour considerable! as for a cabinet-maker or 
plumber; sometim< great, as for the legal and 

medical profes ion. Thus when we pa) oui fees to 
prof J up n 't portion is not so much for 


the service they have just then rendered us, as for 
the expenses of years of previous training. 

Fifthly, certain technical or trade expenses as far 
as they fall on those who receive wages. Where 
workmen have to provide their own tools, like the 
English shipwrights to the value of from ten to 
fifty pounds ; or to find certain of the materials, as 
some tailors to find trimmings, and some quarry- 
men to find blasting-powder; or to provide particular 
garments for particular work, or light and fuel if 
they have to take the work home, or a consulting- 
room and a carriage like a doctor: all these expenses 
have to be taken into account if we are rightly to 
estimate the real amount of wages. 

Sixthly, any supplement to the definite nominal 
wages in the shape of indefinite wages, the nature 
of which has already been sufficiently illustrated. 

The foregoing remarks suggest, what in fact is 
known to the experienced, that it is a matter of 
great difficulty to ascertain the real wages of different 
classes of wage receivers, even in the same neigh- 
bourhood at the same time; and much more difficult 
if the comparison is extended to work-people of 
distant places, or of different manners, or of former 
times. And the causes on which each particular 
amount in each case depends are not simple, but 
complicated and obscure. It is scarcely possible to 
lay down even a maximum or mininum amount in 
general without having to make many particular 

Thus the maximum wages of those employed for the sake 
of profit must indeed be less than what their employers 

WAGES. 373 

anticipate will be the produce of their labour ; else they 
would not employ them. But how much less is a variable 
quantity with almost every employer, as scarcely two em- 
ployers are exactly alike in their opportunities of making 
profit; and the more they anticipate, the more they can afford 
to give to their workmen. In cases where there is a trade 
secret which workmen know and might reveal by working for 
another employer, the maximum may be paid to secure their 
fidelity. In many cases a subordinate, like a confidential 
clerk, is invaluable to a business, but only to that particular 
one, not to any other. The wages paid to such a man need 
only suffice to keep him from resigning his post, and may be 
much below the maximum. And even the shadowy maximum 
we have discerned, fails us in the case of non-industrial wages 
where there is no definite produce to be anticipated. Thus 
there is no definite limit to the fees of doctors, the salaries of 
actors, or the wages of domestic servants. For the inclination 
and the capacity to pay of the patients, of the spectators, 
and of the masters, are indefinite. 

It seems a pity to speak, with some writers, of the great 
earnings of skilful professional men (doctors and lawyers) or 
of popular singers and actors as a rent of rare natural abilities 
or a quasi-rent, in other words to treat them as differences. 
No doubt there is a certain analogy between the high profit 
of a skilful man of business and the high earnings of a skilful 
doctor or singer. But there is much more reason for dis- 
tinguishing the two cases than for assimilating them, inas- 
much as that profit is mainly the consequence of being able 
to make a fortune out of the same prices that leave the unskilful 
in their penury ; whereas those earnings are mainly the con- 
sequence of being able to obtain higher prices than those 
received by the unskilful. These earnings have, in fact, 
more analogy with a scarcity price or a monopoly price than 
with differences ; but in these matters it is best to keep clear 
of all analogies. 

Minimum wages might seem clearer; for surely they must 
be enough for a man or a family to work and live and rear a 
successor ? By no means ; for the minimum can sink much 
below this, and often has done so. The income of the 
labourer may be supplemented by alms, or by rents (interest 
on his savings, for example, in a savings bank), or by 
profits on some petty industry, and he can thus afford 
to take wages lower than that imaginary minimum. Or 
other labourer! Can bfl brought in to Supply the place of 
mg off through insufficient wages or overwork (no 
imaginary Supposition), and thus the (let line of the wage- 
receiving population can be made up for out of the increase 


of other classes. And the moral minimum of wages — what 
will induce a man to work — is also obscure. Sometimes 
payments in honour are allowed to keep down the real 
amount of wages, witness the effect of the social honour paid 
to the military profession on officer's pay and, in a very 
different rank of life, the effect on the wages of young shop- 
women of the honour they enjoy of being accosted as " Miss," 
and being designated as "young ladies." On the other hand, 
many occupations which, being dirty, hard, unhealthy, or in 
any other ways disagreeable, we might expect to be better 
paid, as a compensation, on the contrary are the worst paid 
of all ; for laws and customs and hard necessity will induce 
men, like the miserable workers in the clothing and furniture 
trade of East London, to do almost anything for almost 

Whether we can say that between maximum and 
minimum wages there is a point where wages ought 
to rest, whether in other words there is such a thing 
as fair wages, is a matter to be considered in a subse- 
quent chapter. And whatever is necessary to say 
on the points where wages have actually rested will 
be said in the chapters on the historical forms of 
social relations ; for to treat of actual wages a priori 
apart from history, is waste of time. 

Here indeed we must give a few words of 
criticism to a very prevalent doctrine of the equality 
of wages or of the existence of normal wages, closely 
related to the similar doctrine on profits which has 
already been examined. In its most reasonable form 
this theory of wages only professes to apply to cases 
where there are no serious legal obstacles to a 
change of place and trade by workmen ; and also 
admits within each country certain non-competing 
groups, such as common labourers, skilled artisans, 
still higher workmen, and professional men, and 
that wages may keep at a different level for each 

WAGES. 375 

different group ; but then within each group wages 
are asserted to tend towards equality, the rising 
generation deserting those places or trades where 
wages are lowest, and flocking to those where they 
are highest. Even, however, in this moderate form 
the theory is untenable, being based on four wrong 
assumptions, as follows : 

First, the wrong assumption of knowledge, that 
within each non-competing group all the workmen 
throughout a whole country are able to know all 
the differences of wages and work in all occupations 
open to their group, and thus direct their children 
to those where the net advantages are greatest. In 
reality the difficulties of finding out real wages are 
so serious, that they often baffle the researches of 
educated men with abundance of time to make the 

Thus the statistician, Mr. Bevan, remarked some twenty 
years ago that the question of wages was always a difficult 
one about which to gain accurate information ; and it was 
pointed out by Cliffe Leslie how in England working men 
often did not know each other's wages even in the same town 
and in closely cognate branches of trade ; and that there was 
great variety in the amount of labour exacted and in the 
enforcement of fines and deductions from wages in different 
workshops even in the same trade. More recent inquirers 
meet the same difficulties. The bewildering complexity of 
in East London and the difficulty of ascertaining them 
appear in the volume by Mr. Charles Booth, where also Miss 
Colletl how "no two factories in any of the minor 

I can be relied upon to have the same system of 

m;/ and paying learners" (p. 422), and how employers 
are in iome anxious and able to conceal what wages 

e tu ally pay. (p. 457. j Again, it 1 1 10 diffii nil to 1 "ii pare 
' A miner 1 in differ* al pari 1 of 1 England, that 
apt to d a means of providing data for arbitra- 

tion, li;i 1 bad to la- abandoned. (Price, Industrial Peace, p. 59.) 
Similarly in manufacturing Belgium, in the great city of 


Liege, a practical institution called the Labour Exchange 
(Bourse du travail) has, after a fruitless attempt, found it 
needful to leave off publishing statistics of actual wages, as 
the variety of contracts and the variety of conditions in piece- 
wages rendered the statistics delusive. All of which evidence 
has nothing in it surprising when we call to mind the condi- 
tions of real life and the nature of real wages. 

Secondly, the wrong assumption of a general 
power of choice even supposing adequate know- 
ledge. For in reality the expenses of moving to 
another place are often insurmountable by the very 
poor ; and the very poor must put their children to 
the trade that will the quickest enable some petty 
addition to be made to the family income, and by 
no means to that which will give the boy or girl the 
best chance of future well-paid employment. Observe 
that the difficulty of changing one's trade is often 
heightened by such change involving removal to 
another town because of the localization of trades 
conspicuous in modern times (supra, p. 86) ; and 
thus, as Professor Walker well shows against 
Cairnes, the great majority of the children of the 
very poor are bound to the occupation of their 

Thirdly, the wrong assumption of a general 
willingness to move. For in reality those precisely 
who being rather better off are able to migrate, 
may be bound by attachment to the scenes of their 
childhood, the resting-place of their forefathers, 
the home of their kindred and friends ; bound also 
perhaps by ties of relationship or friendship to their 
particular trade. 

Fourthly, the wrong assumption of the absence 

WAGES. 377 

of combination, when in reality, combinations of 
workmen or masters, or of the two in union may 
keep up wages or keep them down, may raise or 
lower them in particular places or employments, 
and frustrate any tendency to equality. 

Finally, the theory can be met by saying, that 
not only in what it assumes, but in what it asserts, 
it is contrary to facts. 

Thus Cliffe Leslie, writing in the year 1874, well said : 
" During the last two generations, while some distinguished 
economists were asserting, not merely a tendency towards it, 
but an actual equalization of wages, the real tendency in all 
countries making progress was towards inequality — a tendency 
which, in fact, already showed itself in a marked manner a 
century ago, with the advance of commerce and manufactures, 
in both Great Britain and France, as statistics collected by 
Adam Smith and Arthur Young prove." (Essays, p. 380.) And 
the marvellous ease of inter-communication and transport 
enjoyed by England for nearly half a century, neither has 
brought, nor is likely to bring, wages to a level. Many varia- 
tions according to locality, even according to particular 
collieries and particular workshops, are to be found in the 
wages of the mining and manufacturing work-people, and a 
similar variety in farm wages ; while the divergence between 
town and country real wages, considering the great rise in 
rural districts of the price of dairy produce, is probably as 
great as ever. 

No doubt, as observed in the chapter on profits, there is 
eat migration of workmen into the new trades and places, 
and from the country into the towns ; no doubt high wages 
in particular trades or districts are sometimes brought down 
by arrivals, even sometimes raised by departures ; no doubt 
where colonial COUntrief are enjoying the exceptional advan- 
tages of old-world arts combined with new-world nature and 
exhaustive agriculture, very high wages are probable, and 
will be reduced by immigration as far as it causes the law of 
diminishing returns to come sooner into play. This is all true, 
and the sight of it accounts for the prevalent e of the illusion 
of normal wages, and their equalization within each country. 
But really, as already explained in the chapter 00 profits, the 
passing of men from one trade and place to another is rather 


an indication than a leveller of inequality ; and though some- 
times levelling up or down, it occasionally causes fresh 
inequalities, and often leaves things as they were. 

So with Cliffe Leslie we reach the negative 
conclusion that the doctrine of the equality of wages 
is an illusion, that there is no such thing as a 
general or normal rate of wages even within imagi- 
nary non-competing groups, much less a national 
rate of wages : but all sorts of rates and endless 
varieties of real wages, according to employment, 
locality, and employer ; and all depending on many 
complicated causes both physical and historical. 
Thus the last support of the doctrine of normal 
prices, such prices being supposed to be sufficient 
to allow normal wages to the workmen, falls, as we 
said at the end of the chapter on profits that it 
would fall, to the ground. 

Not quite the same as the theory of normal wages, though 
connected with it, is the famous theory of a wages-fund, which 
in one shape or another long prevailed in England, and which 
asserted that a definite sum was annually destined to pay 
wages of " productive labourers," and that hence if one set of 
such labourers got their wages raised by combination or by 
philanthropy, no advantage was got by the labouring classes 
as a whole, because there had of necessity to be a corres- 
ponding reduction in the wages of the rest. 

But even if we could separate off productive labourers 
definitely from the rest of the community, the supposed 
definite sum devoted to pay their wages is a mere fiction. 
It is much rather indefinite and variable. For (a) precisely 
the payment of such labourers depends not on previous 
accumulations, but on the produce of their labour. " It is 
the value of the product, such as it is likely to prove, which 
determines the amount of the wages that can be paid." 
(Walker, Polit. Econ. p. 368.) Often, indeed, wages are 
advanced before the work is finished, as to navvies con- 
structing a railway ; but this has no necessary effect on 
the proportion of the produce of that work to be assigned 
to the labourers ; any more than the converse case, where 

WAGES. 379 

the proceeds of the labourer's work get into the hands of 
their employers before the labourers are paid ; as happens to 
railway servants. Again, though true that no enterprise 
which takes long to complete can be undertaken unless 
there is support for men and masters till it is completed, 
this only means that men and masters together must have 
an accumulation of the necessaries of life enough to carry 
them through, or be supported on credit by outsiders ; and 
does not mean in the least that a definite sum and no more, is 
to be assigned to the workmen as wages. 

Again, (b) precisely the rate of wages which a particular 
employer calculates he will have to pay, may influence him 
to employ more or less men, to substitute animals and 
machinery for workmen, and thus affect the number of 
"productive labourers." 

Finally, (c) law, or combination, or public opinion, or 
conscience, compelling him to reduce his expenditure on 
wine and venison, on perfumes and satin, on horses and 
hounds : much of what is saved thereby may go into the 
pockets of these labourers. 

True there might be less demand for wine and satin and 
loss to the labourers in the wine and satin trade, as well as to 
the poor " unproductive " grooms and coachmen ; and pre- 
cisely the latest form of the wages-fund theory, adopted by 
Mill and Thornton, urged such loss, and made it appear, just 
as in the earlier theory that if one set of workmen gained, 
others must lose in proportion, because the public, paying a 
higher price for what the lucky set of workmen made, had 
less to spend on what all other workmen made. But they 
forgot that if the " public " had less to spend, the " lucky 
workmen " had more ; and that the smaller demand for satin 
and wine would be balanced by a greater demand for beef 
and flannel. 

The prevalence of the mischievous doctrine of a 
wages-fond may be attributed in part to the mis- 
apprehension of the three following truths : (i) That 
there is a maximum of wages, vague indeed and 
varying, and elastic, but still a maximum. (2) That 
more workmen cannot be employed in a country 
than there is food enough procurable to feed and 
materials to work on — a truth intended to be 
! by Mill in his proposition, that "industry 


is limited by capital." (3) That where a great part 
of the inhabitants of a country live by wages, the 
average wages cannot give more than a decent 
subsistence, whatever laws and institutions may 
prevail. These propositions are true ; but the 
theory of a fixed sum that must reach the labourers 
anyhow, and that no moral forces can alter, is false. 



In contrast to rude, simple, primitive, barbarous, or 
uncivilized societies, we justly distinguish civilized 
nations. To be a nation the society must have a 
certain measure of political power and organiza- 
tion ; and to be civilized it must in addition have 
some proficiency in the industrial arts, and agri- 
culture, mining, and manufactures, and must have 
a written literature, some knowledge of philosophy, 
history, and physical science, and some skill in the 
fine arts ; all which has already been pointed out. 
(Supra, p. 34.) Now according to the evidence of 
facts and our knowledge of human nature, these 
characteristics of civilization have two prerequisites : 
one, the existence of towns, to give, as the words 
remind us, urbanity and civilization, instead of 
rusticity; the other, the existence of a separate 
class of people with revenues so large as to allow 


leisure for easy and refined life, or for the higher 

functions of Government. 

On the first prerequisite little need be said ; for 

it is hardly disputed or disputable that learning and 

literature, science and art, technical training and 

inventions, require the concentration of teachers, 

the concentration of pupils, the concentration of 

the material apparatus of culture ; and the centres 

are the towns. 

A word of explanation is needed lest any one might think 
that the dreadful evils of modern urban concentration — the 
Wohnungsnoth described in the tenth chapter of the First 
Book — is a necessity of civilization, the heavy price we must 
pay for it. This sad view is not the true view ; for the 
presence of towns needful for civilization does not imply their 
excess : it is quite enough for the purpose if a comparatively 
small proportion of the inhabitants of a country, perhaps 
five to ten per cent., be dwellers in towns ; and if most of 
the towns be comparatively small, containing from twenty 
thousand to fifty thousand inhabitants. Colossal cities and 
an urban population of more than a quarter of the whole 
nation, are not prerequisites to civilization, but a menace 
to it. 

The second prerequisite of civilization, unlike 
the first, requires a good deal of explanation, as the 
matter, though simple, is very often very imperfectly 

In the civilized society in which we live we all 
know that there are different classes who do not 
associate together. And if we look carefully we can 
that these distinctions are not according to 
whether each family lives by wages, by profits, or 
by rents, but according to whether they are rich or 
poor, that is, according to the amount and per- 
man< 4 their incomes. Tims a cotton spinner 

making £5,000 a year and a cobbler making £50 


both live by profits, nay, both by the profits of 
manufactures, but do not take their place together 
in society ; and there is an equal distinction between 
a retired stock-broker with £7,000 a year from his 
investments, and a carpenter past work whose 
savings have allowed him to buy an annuity of 
£yo a year, though both live by rent ; and between 
the judge and the woman who cleans out his court 
of law, though both receive wages from the Govern- 

Our first business is to explain how it is possible 
that the incomes of different families can thus be so 
different in amount, one from the other ; for if we 
are to justify such differences, we must first under- 
stand them. Now a certain difference is quite 
simple, and would be seen if each family supported 
itself solely by its own labour from its own property. 
Greater skill, greater industry, better soil and 
climate, better tools and implements, or more scope 
by living in joint families for production on a large 
scale, may all make much difference. But there 
are limits to the enrichment due to such advantages. 
None desire more arable land than they can plough, 
more pasture land than enough for their cattle, 
more cattle than they can tend, more capital, in a 
word, than they can work. For it would be useless 
to them in the case we are supposing where every 
family works for itself. In the objects of enjoyment 
there are limits to enrichment analogous to those 
in the means of production. For many changes of 
clothes, elaborate banquets, large and well furnished 
houses, well kept pleasure-gardens, hunters and 


hounds, all require much time and trouble ; and 
being without servants this time and trouble has to 
be their own. Some great change therefore in 
social relations is required before there can be such 
a thing as a rich family, or even a middle class 
family with four or five hundred pounds a year. 

Nor is this great change to be found in the 
division of labour, which in itself does not alter the 
case or affect relative wealth. For a family wholly 
devoted to working, for example, in leather or iron, 
can only utilize and thus only desires a limited 
stock of materials and tools, and can only supply 
and thus only desires a limited number of customers. 

The great change is the introduction of a serving 
or dependent class, which makes rich men possible. 
For if a family can employ servants, that is, those 
who do not share in common like the members of 
the family in the results of their joint labour, but 
get less than the addition which their labour gives 
to the produce, it is plain that indefinitely more 
capital can be used by the family, because there are 
now more persons to work it ; and as the labour of 
each servant yields a surplus, or he would not be 
employed, it is plain that if only there are servants 
enough, the members of the family that employs 
tli- in can live in leisure and abundance, with no 
industrial Labour but that of superintendence, and 
perhaps even this delegated. To live thus indeed 
it is necessary that they be not only relieved in the 
process of production! but also helped in their 
enjoyment. They must have body servants, house 

Servants, stable servants, garden servants, or their 


possessions will be of no use to them. For it is no 
use for a man, in Adam Smith's phrase, to grow 
rich "by employing a multitude of manufacturers, "" 
that is, workmen, unless he can employ not a multi- 
tude, but a certain number of " menial servants." 
This is obvious, and these can be called non- 
industrial servants and the others industrial. 

Observe that the number of industrial servants required 
to enable their employer to lead an easy life, varies accord- 
ing to the productivity of industry and the amount of wages ; 
but that even where the cost of labour to the employer is 
lowest, the number must be large, much larger than that of 
the non-industrial servants. The number of these last is still 
more variable, being dependent on manners and customs, on 
the climate, and on the kinds of recreation. Great heat and 
great cold require more precautions and mitigations, and thus 
more servants to manage these than in temperate climates. 
Some sports need no assistance, others require grooms or 
huntsmen, or beaters or guides ; in some societies a gentleman 
or a lady must be accompanied by a retinue, in others they 
can go alone. It follows that we must distinguish times and 
places before we try to reckon the total number of industrial 
and non-industrial servants required by each rich family ; 
and even then we must not hope for great precision. 

Although precision is impossible, a precise figure 
is convenient for the memory ; and therefore let us 
reckon that in England in our own day a family to 
be rich requires the entire labour of a hundred other 
families : that to be in the middle class it requires 
a smaller number of industrial and non-industrial 
servants ; but that unless it can command the entire 
labour of ten families it belongs to the poor class, 
not to the middle, and still less to the rich. These 
particular figures may indeed be wrong ; but un- 
doubtedly the following general propositions are 
right, that each rich family presupposes a number 


of poor families, and the richer it is the greater that 
number ; that a society may be imagined of all poor, 
but that a society of all rich or all middle class is 
an impossibility; that the richer class must from 
the nature of the case be the few, and the poorer 
class the many. 

The names in different countries, times and languages, by 
which the essential distinction of classes according to riches 
or poverty, are expressed, form an interesting and instructive 
study both historical and linguistic. Sometimes the name 
for the rich implies praise, and for the poor, blame. In 
English the phrases common people and labouring poor have 
gone out of use, and the words servant and service have 
shrunk up to be merely equivalent to domestic servant or 
domestic service, while the industrial servants are called the 
working classes, operatives, or men. But the importance of 
words must not be exaggerated ; a term of honour can become 
a term of reproach, and conversely ; nor do many people 
know or care anything about etymology. The great thing is 
to understand the necessary conditions of society and the 
real relations among men ; and the words most suitable for 
economic science seem to be such words as masters and 
servants, rich and poor, richer, middle and poorer classes. 

Two points may confuse the student. First, the servants 
may not work exclusively for one master but for many. This 
makes however no difference in the result, it being the same 
to the income of, say, ten masters, whether a hundred 
industrial servants work for each of them separately, or 
whether a thousand work for them jointly, and each master 
be entitled to a tenth of the labour of each servant. 

Secondly, the servants may live far away, perhaps even in 
another country, from the masters, to whom their names and 
very existence may be unknown ; but as long as they are 
living and working somewhere, it does not matter where ; the 
R is the same for the master's income. Tims in fad 
many rich people in England and France are virtually, th< 

ly and nominally, the masters of industrial servants 
in Bengal, Tonquin, Egypt, ( ruiana, and many other counl 
and the excess of import exports in England and France 

lined :uprci. pp. 242 — 244), is tin- indication tli;it tin; 

live m the e two countrie and the servant in tin- 




The relation of master and servant must be well 
understood if we are to understand the significance 
of property in civilized countries. For whereas in 
a simple society property merely implies rights over 
things : in a civilized society it implies rights also 
over persons. Much misunderstanding would be 
avoided if this distinction was always remembered, 
and if when we spoke of a civilized society we 
borrowed Adam Smith's phraseology, and said that 
a man is rich or poor according to the quantity of 
the labour of other people which he can command 
or which he can afford to hire. 

But if the foregoing explanation of the nature of 
riches and poverty is true, and if understood it can 
hardly be denied, being little more than a collection 
of truisms, then we are confronted by two questions : 
one historical, how some people come to be servants 
and others masters ; the other ethical, whether such 
distinctions among mankind are lawful. Let us 
look at each. 

The historical question allows no general answer, 
any more than the closely allied question in political 
science, how some people come to be rulers and other 
ruled. We can indeed say that the fortunate, or skilful, 
or strong, or self-denying, or crafty, or unscrupulous, 
or selfish, or cruel, are likely to collect stores of food 
and means of production ; and that the unfortunate, 
or feeble, or self-indulgent, idle, drunken and licen- 
tious, or easy-going and gentle, or kind, or simple, 
are likely to be without objects of enjoyment and 
means of production, and to be willing or compelled 
to work for others. But this proposition is so general 


that we cannot tell whether a particular rich man 
deserves honour or disgrace ; nor whether, if we 
meet a particular case of poverty, we are to say, 
" poor fellow," or " serve him right : " we must first 
know the particular origins of the riches or of the 

Pitfalls. (1) To say that the rich are, in the main, those 
who have been, themselves or their ancestors, industrious and 
self-denying ; and the poor, those who have been idle and self- 
indulgent ; for this view take possible causes for the prevailing 

(2) To say that the rich are, in the main, those who, 
themselves or their ancestors, have taken advantage of 
the distress and simplicity of others to enrich themselves ; 
and the poor, those who have been their victims ; for this 
view also takes possible causes for the prevailing cause. 

The multitude of particular origins of riches 
and poverty belong to industrial biography and 
economic history. Here it is sufficient to give a 
rough enumeration. 

Men may grow rich (a) by the sword, returning 
home laden with booty, or installing themselves as 
lords over a conquered people who henceforward 
work for them, as the Franks did in Gaul, the 
Xorrnans in England, the Spaniards in Mexico. 
They may grow rich (b) by capturing slaves, whether 
in public warfare like the Romans in Macedonia, or 
in private warfare like that of the Arab slave-traders, 
or by kidnapping, or by contract ; and the traffic 
in coolies and other natives for work on plantations 
1 ID analogous source of wealth, (c) A share in 
political power lias been another fertile source, yield- 
ing many lucrative concessions, revenue-farming, 
army contracts, salaries, commissions, perquisites, 


bribes, and divers opportunities of peculation, of 
which origins of wealth some recent and striking 
examples have been seen in Italy, Argentina, and 
Canada, (d) Foreign trade when conducted with 
uncivilized peoples may give great returns and build 
up great fortunes like those of the rich merchants 
of the Hanse towns, of Venice, of Holland, and 
of England, (e) Inventions of all kinds, especially 
where there is already much wealth accumulated, 
may be the ground of great fortunes, whether 
splendid inventions like the Bessemer process for 
making steel, or trivial like that of making dolls' 
eyes, which nevertheless gave the inventor a 
fortune. (/) Differences of all kinds are a source 
of wealth, whether in the shape of rent from farms 
and business premises, or profit from sales, and 
whether due to the law of diminishing returns, or 
to mercantile skill, good luck, or other causes, of 
which we have spoken at length in the chapter on 
differences. Again (g) monopolies, whether legal 
like those granted by Elizabeth and James I., or 
practical, like English breweries, railways, and 
banks ; and (h) scarcities, notably building sites in 
fashionable quarters or watering-places, are all 
conspicuous sources of enrichment, (j) Successful 
gambling, if every kind of it be included, has been 
another source, and never so important as in our 
own days, when so many fortunes are due to 
"operating" upon the Stock Exchange, (k) Im- 
mense charges for personal services may be another 
source. This presupposes a wealthy class already 
generated ; but this being so, these charges may be 


a great means of transferring wealth and changing 
fortunes. For example, in ancient Egypt immense 
payments were made to pagan priests, whose wealth 
was founded on the belief in the necessity of an 
elaborate service of the dead ; or in modern times 
in Western Europe and in America the heavy fees 
often paid to the legal and medical professions. 
(/) Extortion and fraud of all kinds in trade and 
in lending is a source of enrichment, such as the 
exorbitant retail prices described in the Second 
Book, and above all, the profits of usury, the source 
of much of the ancient Roman fortunes and of no 
insignificant part of the fortunes of modern Europe. 

The particular origins of people becoming poor, 
that is, passing from the richer and middle to the 
poorer class, are partly the converse of the above : 
being conquered, plundered, enslaved, cheated, en- 
tangled by usurers, ruined by some invention of 
others, and being the loser in gambling and specu- 
lation. But partly they imply no enrichment of 
others, and come from calamities, such as murrain, 
drought, flood, earthquake, hurricane, fire, blight, 
or such as illness, accident, insanity ; or from 
injuries such as being harassed with lawsuits, or 
involved in the bankruptcy of others; or from 
mistakes such as those of inefficient men of business 
or blundering farmers; or from vices, such as 
drunkenness, which is daily dragging down many 
of the English middle class into the ranks of the 

Th'! particular origins of impoverishment are 
always sad to read ; but many of the origins 


of enrichment, it is only too plain, are equally 
sad — not all indeed : self-denial and frugality, 
skill and honesty, hard work and deep thought, 
have often gained even in material goods their 
just reward. Still, on the whole, any study in 
detail of the origin of fortunes is a painful study. 
No doubt we can, after the example of many 
writers, shut our eyes to the facts, and call black 
white. But it is better to face the facts and deal 
with them in some way. Now there are three prin- 
cipal methods of dealing with them. First to use 
them as a proof that the Socialists are right in their 
desire to abolish inequalities of fortunes, and to 
introduce a collective ownership of all means of 
production : as though inequality was the cause of 
human weakness, wickedness, and misery, and not 
much rather the effect. The second method is to- 
look on the facts with cynical amusement or pessi- 
mistic helplessness, as though because wickedness 
and oppression cannot be extirpated they must be 
allowed to fasten on their victims without let or 

The maxims of the corrupt society of modern Persia, that 
" every man is entitled to his modokel or perquisite," that " a 
net profit must be made out of every transaction," and that 
11 all life is business," have no doubt their analogies in our 
own maxims and practice, as pointed out in an amusing com- 
mentary in The Times, Jan. 15, 1890; and "in both countries 
poor men are constantly scraping together a good deal of 
modokel and becoming rich, while rich men neglect the golden 
rule of making a profit on every transaction, and so become 
poor." Only the conditions of neither of these two countries 
are the inevitable and irreformable conditions of man. 

The third method of dealing with the facts is 
that of Christian morality, which regards them 


neither with helplessness nor indifference, nor again 
with blind indignation or delusive hopes. In the 
department of human action concerned with wealth, 
human nature is the same as in all other depart- 
ments, fallen and prone to evil ; and the history of 
the origin of private fortunes is an excellent com- 
mentary or object lesson upon the teaching of 
Christian morality, which warns us of the dangers 
of the love of riches, which forbids us to overreach 
our neighbour in business, which imperatively bids 
us make restitution to those we have wronged, 
which imposes on Christian rulers the duty of 
restraining various evil forms of enrichment. 

Moreover, from the Christian view that inequality 
in human conditions, and the distinction of rich and 
poor, are both just and beneficial, an important 
practical conclusion follows. It is this, that always 
presupposing the Christian view to be right, then it 
is no argument against the rich to show the badness 
of particular origins of riches, not even if we prove 
a whole class of people to have inherited fortunes 
made by iniquities : we shall not have rendered 
socialism one jot more acceptable to our reason, 
though much more imposing to our imagination. 
True indeed where the victims and the oppressors 
are still living, the law can in many cases enforce 
restitution. But in a short time any such attempt 
only strikes the innocent and only adds a second 
injustice to the first. The doctrine of prescription 
in economics as well as in politics is essential to 
social welfare; time brings healing in the moral as 
well as in the physical order; and the children of 


those who have acquired riches and power in the 
very worst way may use them in the very best. 

Take for example two well known and recent cases, and 
consider — always on the assumption that the distinction of 
rich and poor is in itself just and beneficial — how we could 
undo the work by which only a hundred or a hundred and 
ftfty years ago great riches were acquired through the negro 
slave-trade and through the ruthless oppression of the natives 
of India. From whom would you take the wealth ? To whom 
would you pay it ? What benefit, not to speak of justice, 
would result from the transfer ? Nay, even the nefarious 
revenues that are being made this day from the traffic in 
spirits with the natives of Africa, flow into so many hands, 
and inflict injuries which though most dreadful are so inde- 
terminate, that no restitution could be carried out by any law. 
The horrible traffic indeed should be stopped, just as the 
plundering of Hindustan years ago and the American slave- 
trade were stopped : but the riches must be left in the hands 
that have got them. 

But after all, may we make the assumption that 
this distinction of rich and poor — this inequality, is 
lawful and just ? This is the second question we 
had to answer ; and the next chapter shall be 
devoted to answering it. 



Great inequalities of wealth and the distinction of 
rich and poor can be justified by an appeal to the 
natural law on the following grounds : 

First, the development of literature and art — the 
beautiful side of life — is a use of man's faculties 
evidently intended by Providence, and impossible 
without an upper class with servants and leisure ; 
therefore inequality, as a necessary means to this 
end, is justifiable; and the result is, that for all 
classes, the serving and occupied classes among 
them, there is the possibility of enjoying goods 
that without inequality would have been unattain- 

Secondly, the same can be said of all kinds of 
science : philosophy, mathematics, the historical 
and the physical sciences. 

Thirdly, the same can be said of political 
development ; to have a noble fatherland and to 
be the citizens of a great nation implies inequality. 

Fourthly, the same can be said of concerted 
labour, productions on a large scale, of the develop- 

::t of the industrial arts. The eagerness to 
make a fortune, to live ID ease and abundance, is 


not a high motive, but as men are, a needful spur 
to combinations and inventions. 

If these four arguments are valid, it is clear that 
the poorer inhabitants of a civilized country ought 
to gain advantage from the inequality and the 
service on which civilization rests ; and if they gain 
no advantage, it is not the use of inequality and of 
service that is in fault, but the abuse. 

Pitfall. To simply affirm or simply deny that the rich are 
supported by the " surplus produce " of the poor. In a sense 
they are, and in a sense they are not. There must be a 
surplus, or there could be no rich people ; but then the 
prospect of being a recipient of the surplus is the ground of 
much of the industrial proficiency which renders a surplus 
possible, not to speak of some of the surplus rendering 
possible many good things for the poorer classes. Hence, 
though it is quite true that the rich could not exist without 
the poor, it is also true, assuming humane and rational laws 
of service and ownership, that the poor would be worse off 
without the rich. 

A fifth argument can also be added from the 
natural law, that the existence of inequality and of 
service gives occasion for the exercise of many 
virtues, such as loyal service, and self-denying 
almsgiving, and submission to the dispositions of 
Providence, virtues of peculiar fitness for the posi- 
tion of man on earth. 

The Christian religion does not remove the 
natural law, but supports it and perfects it. Thus 
the foregoing arguments may be obscured by rude 
ignorance or by subtle errors ; and they need to be 
made clearer and stronger by the Christian teaching 
on man's nature, origin, and destiny. Christianity, 
moreover, adds to them its own peculiar doctrines 
on the dignity and blessings of poverty, and many 


beautiful examples as well as doctrines: all of which, 
being familiar to those within the Christian pale, 
and unintelligible to those without, can be passed 
over. Rather let me direct the attention of my 
readers to the following point, that all the five 
arguments given above have a theological base ; for 
they presuppose a just Providence, a future life, and 
a fixed human nature. They are not meant for 
those who deny these fundamental truths ; and 
much time spent on fruitless arguments about 
socialism would be saved, if it were first made plain 
whether the disputants are agreed on these first 
principles, or not. Thus if the earth and the 
fulness thereof is not the Lord's, but man's, then 
truly the annual transfer by almsgiving of so many 
millions from rich to poor may be denounced as 
fostering insolence on the one side and degradation 
on the other ; and instead of being part of the 
Providential order of society, appears as vile hush- 
money paid by the rich to secure their iniquitous 
enjoyments. Again, if evolutionary morality is true, 
and man's end and perfection are in this life, not in 
the next, then the future cannot be judged by the past, 
and we cannot say that science or art, or political 
life, or inventions and organization of labour will 
not flourish without inequality ; or that the ideal of 
Prince Kropotkine is illusory, namely, all to be 
educated alike, manual labour needful for only five 
hours a day, nor required for those above forty 
: or that Mr. Bellamy is wrong in his 
proposal to make the hours of labour shorter 
according to the unattractiveness of cadi employ- 


ment, and to dispense us from all industrial work 
before we are of the age of 21 or after we are 45. 
Only that theory of morals is not true. Again, if 
no watchful Providence guides public and private 
life, and if there is no terrible settling of accounts 
in another world, it is but a feeble argument to offer 
to you and me, that we are to remain poor servants 
and our lords and masters are to enjoy purple and 
fine linen, for the general advancement of humanity. 
For could not the same end be reached as well in 
another way, namely, by you and me being the 
masters, and they the servants ? Only there is a 
just Providence and a judgment to come. 

The issue being thus simple, we may be surprised at the 
deluge of literature on socialism. This is mainly due to the 
unfortunate fact that many people who are much averse 
to socialism and eager to confute it, are equally averse to 
bringing religion into the field to help them. Hence for the last 
fifty years there has been a keen demand for a non-religious 
Socialist-crushing apparatus, and many contrivances have 
been advertised to meet this requirement. Let us look at 
some of these contrivances. 

(A) Theory of the reward of abstinence (Senior's). The 
owner of property, it is said, forbears using it for enjoyment, 
and allows it to be used for production ; and for this sacrifice 
he is entitled to some reward. Hence the receipt of rents 
(including interest and dividends as explained above), and 
a fortiori the receipt of profits, are justified. 

The element of truth in this view is to be found in the 
fourth argument in defence of inequality at the beginning of 
this chapter. But the view itself is untenable. For first, it is 
a petitio principii, assuming the private possession of the 
means of production, when the lawfulness of this is precisely 
what is in dispute. Secondly, the alleged choice cannot be 
exercised in the case of the greater portion of productive 
property : neither farm buildings, nor arable land, nor 
factories, nor machinery, nor raw material can in general and 
habitually be eaten, drunk, or played with ; and so there is no 
abstinence to be rewarded. True, it is possible for a man in 
a commercial society to sell land and factories and drink 


unlimited champagne out of the proceeds. But this is only- 
possible because it is unusual, and implies that those who 
do it are few and far between ; for if great numbers made the 
attempt they would fail to find buyers for their lands and 
factories. So it seems a feeble argument for the rich as a 
whole, that they do not exercise a choice which as a whole 
they cannot exercise. Thirdly, and chiefly, even where the 
means of production are of the nature of a cake that the 
owner can eat, and there is a real sacrifice of present enjoy- 
ment, a real abstinence from consumption, there is an ample 
reward given without any need of any interest or dividend. 
For the workers with heads or hands keep the property intact, 
ready for the owner to consume whenever convenient, when 
he gets infirm or sick, or when his children have grown up 
and can enjoy the property with him. The labourers, in fact, 
warehouse for him gratis, and moreover do what no ware- 
houseman can do : keep his houses free from dilapidation, his 
clothing free from moth and mildew, his food ever fresh, his 
horses and hounds in perpetual good condition. 

(B) Theory of discounting the future (Bohm-Bawerk's). 
Goods in the future are assumed to be less valuable than 
similar goods in the present, and the capitalist is supposed to 
accept future goods instead of present goods handed over to 
labourers, and in consequence to deduct a discount corres- 
ponding to the less value of the future goods. This discount 
then is the legitimate foundation of dividends and interest, the 
just reward for waiting. 

But this theory is liable both to the first and to the third 
objections to the reward of abstinence. To justify interest 
by discount, is to assume the point to be proved; and to assert 
the less value of goods in the future, is to be mistaken. 
Immense sums are paid annually for simple storage of goods; 
and a great part of the excess of retail over wholesale prices 
is precisely a fine for waiting instead of a reward. In reality, 
future goods according to the circumstances and their nature 
are sometimes more valuable than present goods, sometimes 

(C) Theory of the reward of the service rendered by capital 
in the process of production. Hut this confounds capital and 
capitalist, and ui: might as well Bay that a fair-minded man 
will always leave a little soup at the bottom of his plate to 

tup-plate. Nor is the real question 

ed, why any man has any right to own more capital 
than he can work himself. 

(D) Theory of the wagei of mental labour or earnings of 

'. the rich being Bupposed to <!<> all the hi 

kinds of labour, the lab ', invention, and direc- 


tion ; and to be paid accordingly. But even if we exalt to 
the skies the functions of the entrepreneur and the labour of 
management, this will only justify profits, not rents. So even 
then this theory leaves untouched the main point of socialistic 
contention, that all should be made to labour; and as in real 
truth many of the highest profits are made with the least 
mental labour, and vice versa, this theory cannot even justify 

If then we are to withstand the claims of the 
Socialists, who wish to make the State the collective 
owner of all means of production, we must avoid 
the sophistical arguments that will only weaken our 
cause, and must take our stand on the firm rock 
of the theological argument : no other will avail us. 
But then let it be well understood, that we must 
take all the consequences of that argument, and not 
restrict our pious maxims with convenient modera- 
tion to the conduct of the lower orders. For 
precisely this defence of accumulation implies a 
limit to the powers of owners and a responsibility 
on their shoulders. In proportion as a man grows 
richer he gains, ex vi termini, more control over others 
and incurs liabilities towards them. Rightly then 
property has been called an office (unefonction sociale, 
by Count de Mun) ; and an office implies duties. 
The particular duties depend on the circumstances 
of the country at the particular time, and can be 
determined with reasonable accuracy, as well as 
which are to be enforced by law, and which left to 
the internal forum of conscience. The eleventh 
chapter of this Book will deal with the particular 
case of Great Britain and Ireland at this day; but in 
the present chapter only a general outline need be 
drawn of the duties of owners applicable to all 


civilized societies and giving us a criterion to judge 
the different historical forms of the relations of rich 
and poor. 

First, then, within the limits of possibility, the 
decent physical existence of all those of the poorer 
or serving class who work on any property or for 
any master, should be reckoned a first charge on 
that property or on that master's income. There 
must be food and clothing for them, housing and 
furniture, at least such as a humane slave-owner 
would provide for his slaves. 

Secondly, a proper family life must be secured 
to the poor. This means that there be a practical 
possibility of marriage for all, separate homes, 
parental authority, union of family as far as possible 
in the same place of work, and the double security 
of being undisturbed in their dwelling-place and in 
their trade. Hence by some method or other each 
family must be insured, not indeed against all 
calamities, for this is impossible, but against the 
obvious and likely risks of sickness, old age, and 
industrial accidents. 

Thirdly, some portion of the culture which 
inequality renders possible ought to flow back to 
the poorer classes of society : the beauties of 
literature and art in some measure be made acces- 
sible to them ; opportunity given to those among 
them of exceptional ability to penetrate the mysteries 
of learning; some participation granted in political 
Life, especially in local government. Else the 
very advance from rude to civilized conditions 
means no advance in culture for the multitude, but 


retrogression, the vast development of intellectual 
and political life being concentrated among the few, 
while the many become brutalized. 

This has happened more than once, but need not have 
happened. For the division of classes according to wealth 
need not be walls of social separation, but all classes may 
associate together to their mutual profit, chiefly and primarily 
in the exercises of religion, but also in local government, in 
industrial associations, and in rural sports, and a healthy 
union of classes accompany the greatest diversities of wealth. 

Fourthly, the rich and the poor should be linked 
together by the works of charity, and almsgiving 
be abundant in proportion to inequality. 

Of these four heads of duties incumbent on 
owners of property, the two first can be enforced 
more or less directly by the civil power ; whereas 
the performance of the two last can be facilitated 
rather than forced. And the neglect of these duties, 
and the consequent oppression of the poor, are 
liable to be followed by a Nemesis in the shape of 
the Communists or Socialists ; whose ranks may be 
swollen indeed with all the discontented, the envious 
and those who have failed in their professions ; but 
also swollen by a number of generous spirits whom 
the wrongs of the poor and the misdeeds of the rich 
have stung with indignation. 

Pitfalls, (i) To say that a man may do what he likes with 
his own. For if by " his own " is meant what he may do as 
he likes with, the statement is an audacious, though not 
uncommon, petitio principii. If by "his own" is meant so 
much of his property as he can use for his immediate personal 
wants, and utilize by his own personal labour, the statement 
is only true with a number of limitations, and is grossly 
misleading by assigning to the word own so narrow and so 
unusual a meaning. Finally, if by " his own " is meant, as it 
usually does mean, the whole property of a rich man, the 


statement is false, inasmuch as the only justification of such 
ownership implies that the use of it be not arbitrary, but 

(2) To think that enforcement by Government of the 
duties of owners is socialistic legislation. For to think thus, 
is to confound the antidote with the disease. 

Wherever the offices of a rich class and of 
a middle class (to whom what has been said of 
the rich can in due measure be applied) are 
rightly fulfilled, we can say that the poor receive 
fair treatment. This fairness may take different 
forms according to circumstances, such as paying 
fair wages to hired workmen, asking only fair rents 
from poor tenants, making only fair profits in our 
trade with poor dealers, that is to say, paying them 
fair prices. But if we recall what has been said on 
the four heads of duties of the richer classes, we see 
that fair treatment cannot possibly be reduced to 
paying or receiving a proper quantity of pounds, 
shillings, and pence. There are no figures yet 
invented that will enable us to quote the price of 
domestic order, reverence, peace, and affection ; of 
the joyful sports of children ; of friendly social 
relations ; of good morals and of the worship of 
God. It follows that if a definite payment is 
brought before us, say of wages to the work-people 
in a cotton mill, it is not a simple but a complicated 
tioil to decide whether wages are fair. For in 
two adjacent mills turning out the same quantity 
and quality of cloth, the average wages for all ages 

and both might be 18s. a week in the one and 

. m the other, and yet the wages be fair in the 

first and not fair in the second ; and for the 


following reasons : In the first mill by the care of 
the owner the workmen are organized into guilds 
and insured against accident, illness, and old age ; 
decent homes are provided for each family at a 
reasonable charge, and in other ways home life is 
protected, no exorbitant wages given to lads and 
girls making them independent of their parents, but 
each family treated as a unit, and regard paid to 
its special requirements ; also innocent recreations 
provided for all, and proper industrial training for 
the children of the workmen ; and nothing against 
faith or morals permitted within the walls. But in 
the second mill no such care is paid to particular 
wants, no such good things provided ; and thus, if 
a head of a household working there is really to 
bring up his family decently according to his 
station, his wages ought to be higher than those 
paid in the first mill, not merely by ten per cent, 
but rather by fifty or a hundred per cent. ; and even 
this would not suffice ; for no extra wages can make 
up for want of protection to home life, to morals, 
and to religion. So even if we could call his wages 
fair, his treatment would be unfair. 

And the same principle can, with a little thinking, 
be applied to all kinds of poor servants and tenants. 



In any study of the economic conditions of different 
nations or of different times in their history we are 
at once confronted with a difficulty. So multitudi- 
nous are the apparent forms of social relations, 
so various the results on national and individual 
welfare, that we seem lost in a maze, through which 
we can never penetrate, unless we can find some 
clue. For to have our head full of a confused crowd 
of economic facts is no more true science than the 
crowd of useless speculations that once were con- 
sidered to be Political Economy. We need, there- 
fore, an a priori theory, that we may observe, may 
select, and may estimate the facts, and arrange 
them in an intelligible shape. 

Various categories have been used for the interpretation 
of history, such as the progressive, the stationary, and the 
declining state of society; or the rude, civilized, and over- 
civilized; or mediaeval and modern times ; or early and late; 
nd competitive societies; or the theocratic, 
military, and commercial Btages; or societies under status, 
and . •• . under contn homogeneous and hetero- 

all of which are eitn< r mi (leading, and 
principl I 03 nbee' phra e, ral her 1 han 

prim ipli Lex tion ; 01 < I 1 to be "i little 

help on oar v. ay through the 1 On the 

h is to be (aid for the di >tin< tion be it ezpi 1 I 


by the three German words, Naturalwirthschaft, Geldwirthschaft r 
CrediticirtJiscJiaft, that is, the classification of societies according 
as the chief method of payments and of discharging obligations 
is (a) by payments in kind or by services, or (b) by money or 
rather by cash payments, or (c) by payments on credit. But 
although we must keep in view the consequences of the intro- 
duction of money or the extension of credit, these phenomena 
are rather consequences than causes of social welfare or mis- 
fortune, and thus tell us but little on the condition of society. 

The meaning of civilization having already been 
made sufficiently clear, let us treat apart uncivilized 
societies. These are either (a) pastoral or nomadic 
tribes, the basis of whose subsistence is the milk 
and flesh of domestic animals, such as oxen, sheep, 
camels, reindeer ; or (b) hunting or fishing tribes, 
like the Esquimaux, who live by the capture of 
seals and whales ; or (c) rude agricultural tribes, 
who are generally organized in complex joint fami- 
lies or village communities, with comparatively little 
accumulation of private property. 

In each of these three cases their similarity of 
means of subsistence causes similarity in some of 
their manners and customs : but only in some ; 
while in material ease or penury, in bodily develop- 
ment or stuntedness, in mental vigour or feebleness, 
above all, in moral excellence or depravity, in good 
or bad family life, in simple piety or in supersti- 
tion and irreligion, the greatest diversity has been 
observed ; and to lump them all together is a great 
historical blunder. 

But our business lies not with these tribes, but 
with civilized nations ; and for two reasons. First, 
because from what has already been said, civiliza- 
tion is in the order of Providence, and an advance 


to that state is presupposed by the nature of man. 
Secondly, because all the uncivilized tribes are 
rapidly passing into the dominion of civilized 
nations ; and the present problem is not to esti- 
mate the social relations proper to their old 
condition, but those proper to their new condition. 
Turning to civilized nations, we can distinguish 
five principal forms of social relations, which for 
want of better terms we must call feudal, servile, 
corporative, mobile, and official. The first is where 
masters and servants are permanently bound to 
each other ; the second is where the servants are 
bound and the masters free ; the third is where the 
production and sale of goods and the relations of 
masters and servants are regulated by associations ; 
the fourth is where neither associations nor civil 
laws interpose in regulating production, consump- 
tion, exchange, and distribution ; the fifth is where 
the local or central Government interposes to regu- 
late them. 

This catalogue is not exhaustive, but adequate. Observe 
that in one and the same society all five forms can coexist : 
there may be slaves and serfs and unattached workmen, and 
some industries under corporations or under official regula- 
. and others not. But the society or nation cannot be 
called feudal, or any of the other names, unless such relation 
be the predominant one. Thus there were slaves in eleventh- 
century England ; but as the predominant social relations 
feudal, the country was feudal, not servile. Again, there 
Bicia] regulation of industry and some industrial 
. ti :. .:.' England in 1840 ; but the predominant relations 
>bile, and thus the industrial condition of inland 
ailed mobile, but not 1 tive or official. 

1 finally that we cannot affirm regarding these five 

forms any g< ace; and the order in 

I ; :-i< ed t hem i 1 ad< >pted 6 and 

not meant to be their 1.. Is none 


Let us in this and in the three following chapters 
look at examples of the five relations. 

The essence of feudal social relations (or feudalism 
in the economic as distinct from the political sense) 
is two-fold: the first part is that the servant, whether 
called bondsman, helot, serf, villein, or any other 
name, is bound permanently to serve his lord and 
master in some way or another. He may simply 
pay rents, as the Helots did to the Spartan oligarchy, 
or as those Russian serfs did who paid obroc to 
the nobles ; or he may give agricultural task-work 
(corvees), that is, so many days' work during the 
week or during the year on the lord's land, 
and perhaps perform many subordinate particular 
services. Such was the case of the Russian serfs 
where the nobleman was a resident and farmed 
himself; such also was the case of the mass of 
the inhabitants of England in the twelfth century ; 
and again, of the Christians of Herzegovina before 
1875. Again, the feudal servant may work for his 
lord as an artisan, like the serf artisans in the 
Empire of Charlemagne, and in the German towns 
during the early middle ages ; or like the workers 
in collieries and salt-works in Scotland in the 
eighteenth century, or the Russian ironworkers in 
the foundries of the Ural mountains during the first 
half of the nineteenth century. In all these last 
given cases the lord must give something of the 
nature of wages in kind or in money ; for though 
the workman may hold a house and garden and 
many rights of common, time fails him, unlike the 
rural serf, to support himself from the land in his- 


possession. Finally, the domestic servants of the 
lord form another class of serfs, and are mostly 
children of serfs, namely lads and girls serving for 
a certain time in the manor-house. 

The second essential part of feudalism is that the 
lord on his part is bound in some measure to these 
dependents, being able neither to dismiss them at 
his pleasure, nor to destroy their family life. Other- 
wise they would instantly fall into the economic 
category of slaves. But towards serfs the master 
is not free, and must afford them political and 
judicial protection, and, to use modern language, 
insurance against old age, accidents, and sickness. 

The conditions of serfdom and feudal relations 
have been painted in black or white according to 
the fancy of writers rather than the evidence of 
facts. But in the present condition of historical 
studies it ought not to be difficult to make a fair 
estimate of each case of feudalism, and to apply 
the criterions given at the end of the last chapter 
respecting the physical, the moral, and the intel- 
lectual conditions of the people. In some cases 
the poor serfs have been bowed down under heavy 
burdens, overworked and under-fed, and exposed to 
manifold injuries and injustice; in other cases they 
have lived as much at their ease as their position 
of being the serving class, and constituting the mass 
of the people, allows; for never yet have the masses 
n free from eating their bread in the sweat of 
their brow: and never will be. Feudalism in 
genera] may be pronounced favourable to family 
life of the security and permanence which 


it gives to the home, though at times it may be 
injurious by putting difficulties in the way of 
marriage, such as heavy fees to the lord or his 
arbitrary refusal. The weak point is seen when we 
apply the third criterion ; for the serfs may be cut 
off from any opportunity of rising in society or of 
enjoying any intellectual life, and may be kept apart 
from the higher classes, like the Helots from the 
Spartans, by a wall of contempt. In some cases, 
indeed, this separation has been much softened : in 
Christian Europe there was often the possibility of 
freedom by taking refuge in a town or in a religious 
house ; and often the serfs, for example, those in 
the Frank Empire in the eighth and ninth centuries, 
have had the benefit of primary schools for their 

Still, this relation of permanent compulsory 
service, even in its gentle forms, is not in complete 
accord with the Christian ideal that should corres- 
pond with the dignity and brotherhood of man ; and 
therefore the manumission of serfs has been recom- 
mended by the Church, not indeed as a duty, nor 
again as exempting masters from further care and 
responsibility, but in itself as a meritorious work. 

The following picture (drawn mainly after Dr. Stubbs) 
probably represents with reasonable accuracy the condition 
of the serfs in eleventh-century England : 

The villani had rights social and even political. True 
they could not leave their homes, could be handed over to a 
new master by their lord alienating his land, were excluded 
from the judicial duties of the shiremote, were fined if they 
married without the lord's consent, were liable, themselves 
and their children, to a number of determinate and some 
undeterminate corvees and dues. But they were safe in the 
possession of their homes, which passed to the eldest or 


youngest son according to the custom of the manor on 
payment of a fixed heriot ; they had a remedy against the 
violence of their masters, a ready tribunal for wrongs, a voice 
in the Government of their village ; they were exempt from 
military service, and had a chance of manumission, though 
this would be a dubious gain, as they would lose their title to 
be maintained on the lord's land, and would have, unless they 
entered religious life, to look to war, trade, or new service, as 
a means of living. 

Although feudal relations fall short of what is 
ideal, nevertheless they have often been, taking men 
as they are, the best relations possible under the 
circumstances; for example, where one nation has 
been conquered by another, especially where the 
victors are more civilized than the vanquished ; or 
again, where slavery has been recently abolished. 
In such cases a mild serfdom may be the most 
effective protection of the weak, as it imposes 
definite duties on particular members of the ruling 
classes. Thus it may be well questioned, consider- 
ing the nature of the present partitioners of Africa, 
and the nature of the inhabitants, whether any 
other social relation would protect the latter better 
than serfdom, called indeed by some other name, 
but still serfdom. 

Those who know the condition of the negro population in 

the United States, their absolute separation from the whites, 

LusiOD they suffer from social and political life, the 

violent antipathy they arouse, know how idle is their nominal 

equality, liberty, and franchise, and might guess how much 

r than this real oppression and mere show of freedom, 
would have b' < • :i of adscriptio gL : 

ily with a definite master, and therefore with a definite 
and ible protector. Such a system would perhaps 

been in word-, much nearer, but in deed 1 much Further 
from .than the pre enl sy tem, which ha 01 

in common wit] ery, the irresponsibility oi the 


It is not surprising therefore that emancipation 
has sometimes not been looked on by the bondsmen 
as an advantage, and not been an advantage. Thus 
in France at the beginning of the fourteenth century 
we see serfs refusing emancipation, and returning 
to their feudal condition after having been released 
from it ; for the privileges and rights outweighed 
the duties. In our own or our fathers' days the 
serfs of Hungary and Russia have gained but a 
dubious advantage by their emancipation ; often 
falling in the one case into the bondage of money- 
lenders, who leave them with much less independence 
than before ; in the other case often finding the 
rule of the village corporation an onerous substitute 
for the rule of the nobleman. But in other cases, 
especially where elaborate and intensive agriculture 
supplants extensive agriculture, and money pay- 
ments supplant services and payments in kind, the 
dues and services of feudal relations become in- 
tolerably burdensome, and their commutation, if 
fairly adjusted, is a benefit to both parties. In 
these particular cases the proposition is quite true, 
which has rashly been laid down as true in general, 
that serf labour is wasteful and inefficient. 

Slavery or servile social relations are the second on 
our list, and have often been confused with feudal 
relations, out of which they have sometimes 
developed, and into which they have sometimes 
been transformed. But slavery is essentially distinct 
from feudalism ; for the essence of slavery is that 
the slave is not treated as a person with family 
relations, but as a thing that can be captured, sold, 


and used according to the wishes of the owner with 
scarce any limitation. No doubt in fact the treat- 
ment of slaves has very often been softened by the 
natural feelings of compassion and kindness either 
of the master or of public opinion, or again by the 
precepts of religion ; and sometimes the law, while 
leaving them slaves, has given them some protec- 
tion. Also where the master lives amid his slaves, 
friendly relations are so much more pleasant to 
him, that they can be assumed to be the rule : " I 
cannot punish people with whom I have to associate 
every day,*' was a common sentiment of the Southern 
planters in the United States. Even where slaves 
form no part of the household, and work on distant 
plantations, the interest of the master will generally 
be to keep indeed strict discipline, but not to indulge 
in cruelty or shortsighted overwork, but rather to 
enable much work to be done by good treatment 
and to induce it by rewards. However much we 
may dislike slavery, this does not exempt us from 
being reasonable when we discuss it. Unfortunately 
a scientific estimate is hindered by two different 
prejudices: first, the violent and political partisan- 
ship in North America that has represented the 
slave-owning aristocracy of the South as monsters of 
wicl ad cruelty; secondly, the glorification 

of the pagan civilization of Greece and Rome, that 
has concealed the abominations and cruelties of 
M slave States under the varnish of admira- 
tion. In reality, though .'ill slavery is bad, we must 
h many d< of badness, from that of 

ro slavry in the Spani h and Portuguese States 


of America, where the influence of religion made 
it almost like serfdom, to the last extremities of 
horror, as amid the Athenians of the Periclean, and 
the Romans of the Augustan age, when culture was 
at the maximum point and religion at the minimum. 
But though the American " Abolitionists "' were 
wrong in the picture they drew of the existing 
slavery, they were right in opposing all slavery. For 
first, the chief and irremediable evil of slavery, even 
of the mildest, is the encouragement which it gives 
to immorality, and the discouragement among the 
slaves to decent family life. Secondly, the authority 
it gives to the master is inconsistent with Christian 
teaching on the nature and dignity of man. Thirdly, 
there is risk of periodical outbursts of cruelty ; for 
no man, according to the Christian view of human 
nature, can be trusted with absolute power. Fourthly, 
there is the probability that manual labour will be 
despised as a degradation, in contradiction to the 
Christian view of the duty and dignity of labour. 
Fifthly, there is the probability of slavery being 
accompanied by the slave-trade, of which the 
horrors are too well known to need illustration. 

Slavery being thus in such complete disaccord with 
Christianity, it is obvious that no Christian master could use 
all his legal rights, or any Christian slave obey in all things. 
And in fact, though the Church never permitted the slaves to 
rise against their masters, yet the very moment she could 
influence legislation, she caused the slaves to be by degrees 
changed into serfs, as testified by the Imperial laws of the 
fourth, fifth, and sixth centuries. The Teutonic invaders who 
overran the West, proceeded to undo her good work, and 
turn the serfs hack into slaves ; and long it took her to reverse 
the process, and to stop the inveterate slave-trading of the 
German tribes. And then again the evil plant of slavery 


grew up with the waning of clerical influence, and in distant 
lands where Christian home Governments had imperfect 
control, as well as in the vast regions where Christianity was 
superseded by Mahometanism. But in the nineteenth century 
new forces came to help in the work of emancipation ; and 
the political illusions on the equality of man, as well as the 
economic illusions on the universal unprofitableness of slave 
labour and on the fitness of mobile relations and of loosening 
all permanent ties, have been happy mistakes in so far as being 
antagonistic to slavery, and thus have been in a strange 
alliance with the revival of the political and social power of 
religion. Still, even in the nineteenth century, the danger of 
lapsing back into the evil practice of slavery is visible. For 
the labour traffic, or conveyance of Asiatics or Polynesians to 
plantations belonging to Europeans in various parts of the 
world, and the treatment of these dark-skinned races on the 
plantations, are such, if we take evidence unbiassed by 
pecuniary or political interest, that they appear very like 
slave-trade and slavery. 

Besides the moral evils of slavery, the injury 
inflicted by it on national wealth has been vehemently 
urged. Slave labour is said to be (a) inert, as the 
slave's only motive to exertion is the fear of ill-usage, 
to which he gets hardened ; (b) unskilful, as his 
intellect is brutalized ; (c) careless, spoiling tools, 
ill-using animals ; (d) without versatility, being 
unable to do more than one thing; (c) uninventive, 
there being no motive for invention; (/) rendering 
finer manufactures impossible ; and (#) fostering 
exhaustive agriculture, because only certain crops 
can be profitably tilled by slaves, who must work in 
gai. that proper rotation is impossible. 

But this indictment is only true with many 
limitations. These evils are possible results of slave 
labour, but not certain ; skilful and intelligent sla 
and in, lufactures were not wanting in servile 

and Koine; slave-, both < an and have been 


incited to energy and emulation by rewards and 
prizes, no less than freemen ; and have been won 
by kindness to care for their master's interest. 
Perhaps the husbandry in Jamaica on the estates 
of absentees when the slave-trade was in full 
activity, or the husbandry in Italy in Pliny's time 
on estates worked by slaves from the ergastula, may 
have combined all the evils above-named ; but not 
slavery in general. Slavery indeed in general we 
condemn for all times and places, but our con- 
demnation rests very little on material, almost 
wholly on moral grounds. 

Pitfalls, (i) To confuse slavery with serfdom, and think 
the second is merely a mild form of the first. We might as 
well say with the Socialists that modern factory work is a 
mere form of slavery ; for there are several striking 
resemblances such as the irresponsibility of the masters in 
both cases ; but yet they are radically different. And so also 
slavery and serfdom, though with several resemblances, are 
radically different. For the slave master is free, but the 
feudal lord is involved in permanent obligations to his serfs. 

(2) To think that slavery is an " early " institution, and 
has gradually developed through serfdom to liberty ; for this 
progression is fancy, not fact. Remember, for example, that 
the early serfdom in Lacedaemon and Thessaly was superseded 
by the most dreadful forms of slavery ; remember that free 
labour yielded to servile in Republican Rome ; remember that 
Russian serfdom unpreceded by slavery only dated in general 
from the sixteenth century, and grew harsher in the eighteenth 
than it had been before, and that in Germany and Denmark 
the freedom or mild serfdom of the peasantry was superseded 
in the sixteenth and seventeenth centuries by a severe and 
brutal system of serfdom. 

(3) To say that slavery is beneficial in barbarous times by 
affording a motive to spare prisoners, and thus mitigating the 
horrors of war ; when slavery itself is a worse horror, and 
precisely the hoped-for capture of slaves has been a fruitful 
source of warfare. 

(4) To say that where a people, especially in a fruitful 
tropical region, is uncivilized and degraded, slavery is needed 


as a foundation of civilization, that there may be progress in 
the arts, concerted labour, and an educated ruling class, all 
of which would be impossible if the rude natives were not 
forced to produce more than enough to meet their scanty 
requirements. For the alleged benefits in the circumstances 
supposed can be obtained just as well by a system of serfdom, 
and the proposed civilization attained without infecting the 
society with the horrible disease of slavery. 



The third on our list of five social relations are 
corporative relations, under which head we can group 
a great number of associations, whether free or 
compulsory, hereditary or acquired ; whether com- 
prising only the poorer classes, or only the richer 
classes, or both together; whether aiming at pro- 
duction, exchange, or distribution : provided always 
that they have the two points in common of being 
within a civilized country and for an industrial 
purpose. Hence we are not now concerned with 
many instances of communal life among uncivi- 
ples, nor with associations that are mainly 
religious, political, or recreative. 

words corporative and corporation I have used to 
mark that the ation compi era! independent 

units actinj one body, as distinct from single 

individtu le families. A single family is do corj 

tion in this thing independent is joined by it. and 

>ordination of the member are by aature. But a 
joint family i rporation. So again a m 

1 in a definite I" >dy, d< 1 not 
:, ration; for no independent units are Linked 


together. Not even a feudal manor is in any strict sense a 
corporation, though certain classes of the tenants may con- 
stitute one among themselves. 

On the other hand, a corporation in the economic sense 
may exist, though the law may not recognize any corporative 
rights, nay, may condemn it as illicit, like the sodalicia in 
Rome under the early Emperors, or trade-unions in England 
during the first quarter of the nineteenth century. 

Pitfall, into which the legal and official classes are singu- 
larly likely to fall. To confuse the letter of the law with the 
facts of social life ; and because the great forces that influence 
society may have no legal name or status, to ignore or dislike 
them. Hence a dry and formal legal theory of how production, 
exchange, and distribution are conducted may lead to the 
absurdity of supposing that because there is legal there is 
practical equality in a contest between a single workman and 
a rich employer backed by a master's association, or between 
a single gentleman of moderate income and the gigantic 
monopoly of a railway company. A legal remedy is often no 

Corporations are one of the most conspicuous 
features in the industrial life of civilized societies, 
recurring constantly in one form or another, and 
being of the utmost influence on social welfare. 
Let us examine four examples, the trade or craft 
guilds that were so long a conspicuous feature of 
Christian Europe, and the trade-unions, the joint- 
stock companies, and the trusts of the nineteenth 

The theory of the guilds as they existed in their 
prime in Western Europe may be described as 
follows; and the practice was not very remote from 
the theory. 

All the members of a particular trade or handi- 
craft in a particular city or urban district were 
united in a guild, with authority to regulate all the 
conditions of production and sale. No one might 
exercise the trade unless he were a member of the 


guild and had fulfilled the conditions the guild 
required. The primary condition was to serve an 
apprenticeship of several years ; the apprentice 
boarded and lodged with his master, and was 
bound to him as pupil to teacher and as son to 
father ; and the master was responsible for his 
moral as well as his technical education. The term 
of apprenticeship over, the lad now become a man 
passed into the position of a journeyman or hired 
workman, free to choose the particular master for 
whom he would work, and not exposed to the 
master's will concerning the hours and conditions 
of work and the amount of wages ; for all this was 
settled by the guild. But he was still under salutary 
discipline ; for if he left his master without due 
cause or was dismissed with due cause, no other 
master was allowed to employ him. In some trades 
and countries it was the custom for journeymen to 
travel from town to town in order to grow perfect 
in the trade by seeing a variety of processes. Finally, 
when his savings were enough to pay the necessary 
fees, and his technical skill enough to perform a 
masterpiece, he mounted into the third stage of the 
industrial hierarchy, and became a master. But 
risen to this post he was bound by the very pro- 
tective rules that had enabled him to rise. It was 
not he, but the guild in concert with the urban 
authorities, that regulated the hours of labour, the 
Saturday half-holiday, the holidays at Christmas, 
and other ecclesiastical festivals. In our own day 

in England and in most civilized countries, the 
Government does this for some classes of workers; 


but the guild did much more. It afforded a public, 
speedy, cheap, and competent court of arbitration, 
conciliation, and law for settling all disputes (among 
others) between masters and workmen ; it regulated 
wages, and above all, prevented the master from 
rising out of the middle class into the richer class 
by strictly limiting the number of apprentices and 
journeymen that each master might at any one time 
employ. In this way the masters perpetually formed 
a numerous class, and every well-behaved lad had 
a reasonable prospect within a reasonable time of 
rising to the top of his profession. Only the top 
was therefore of necessity not very high. The 
master was also liable to strict supervision by the 
officers of the guild, supported by the town govern- 
ment, to prevent the sale of goods of short weight 
or measure, or adulterated, or ill-made ; and wilful 
offences of this kind were punished with great 
severity, sometimes even with death. The guild 
also acted as a friendly society and popular bank, 
having a corporate fund, or collecting regular sub- 
scriptions from the members, to support such of 
them as were sick or old, as well as their widows 
and orphans ; and making advances in goods or 
money to members in difficulty. The guild also 
fostered among its members religious exercises and 
alms-deeds ; for each guild had its patron saint and 
special religious festival, and generally its altar or 
chapel in some church ; while the special privileges 
given to sons of members, and the rights of the 
widow to carry on her husband's business, strength- 
ened the bonds of family life. 


Such was the guild system in its perfection : 
never indeed without many incidental abuses, being 
human, and with occasional hot disputes and even 
strikes ; but still, solving the problems that now 
vex us, of moral training, technical education, good 
quality of commodities, prevention of being out of 
work, avoidance of perpetual antagonism between 
men and masters, insurance against sickness and 
old age. 

But in this organization of industry there were 
weak points, liable under circumstances to become 
grave defects. First, the likelihood of postponement 
of marriage till the master's degree was reached, with 
injury to private morals and public vigour. If the 
workmen in the factories and iron-works of Lanca- 
shire and South Wales have many disadvantages, 
at least they have the opportunity and the practice 
of early marriage, difficult for journeymen who habi- 
tually boarded and lodged with the master. 

Secondly, the likelihood where religion had become 
weak and manners brutal, for the master to be no 
Longer a father to his apprentices, but a cruel tyrant, 
as sometimes in England in the eighteenth century. 

Thirdly, the difficulty of delimitation of industries, 
that is, of determining what might be done, made, 
and sold by each particular guild. This difficulty 

lid be little felt in times when there were scarce 

any inventions or technical changes; but became 

grave in proportion as these were important, and 

much time and money was wasted in disputes 

D different guilds. 

Fourthly, the liability of the guild degenerating 


into a monopoly for the benefit of a few of the 
members, and no longer securing good work, fair 
prices, or harmonious relations. Heavy fees may 
be exacted before admission to apprenticeship, and 
especially before the master's degree can be reached ; 
and the power of the guild be gradually concentrated 
in the hands of a few rich traders employing a 
number of journeymen for whom there is no hope 
of rising to be masters. And under such circum- 
stances the former precautions against adulteration 
and bad workmanship will become inoperative ; for 
no man can be expected to put himself in the 

Fifthly, the two preceding weak points may 
result in generating a spirit of routine, hostility 
to improvements, vexatious regulations of methods 
of production. And thus the very system which had 
once marvellously promoted combination of labour 
and technical proficiency, as every stone in the 
great Gothic Cathedrals bears witness, and the 
beautiful mediaeval works in metal and wood : this 
system could in its decay become a drag on 

Most of these weak points are remediable 
abuses ; the guilds ought to have been reformed, 
not abolished : and their destruction was in general 
a grievous injury to the poorer classes of society. 

The re-establishment of more or less compulsory guilds in 
recent years in Germany and Austria for small industries and 
for handicraftsmen as distinct from factory workers, is an 
interesting experiment, but too recent to be yet spoken of 
as either successful or unsuccessful ; and too bound up with 
the political constitution of those two great bureaucracies to 
serve as a practical example for ourselves. 


A trade-union in the strict sense has the three 
characteristics of being an association exclusively of 
workmen, and of workmen in industries mainly con- 
ducted on a large scale, and thirdly, having as the 
chief aim of the association to secure good terms 
for the workmen in dealing with the masters. In 
all three points trade-unions differ from guilds, 
which indeed in some other points they resemble 
by acting as benefit societies and insuring their 
members against accident, sickness, and old age ; 
besides spending vast sums on what the guilds had 
no need to do, namely, providing for members out 
of work. Historically, trade-unions grew up in 
England with the growth of factories, with the 
destruction of small and domestic industries, with 
the abolition of the old official regulation of appren- 
ticeship, of wages, and of hours of work. The 
unregulated relations that were the outcome of 
this industrial revolution, reduced the workers in the 
new grande Industrie to the extremity of wretched- 
ness, and trade-unions arose as a measure of self- 
defence. Forbidden by law till 1824, they began in 
secrecy and often were maintained by violence ; but 
gradually won toleration, recognition, and at last 
(about the year 1875) approval ; and have been 
imitated in North America and on the Continent. 

In K i inland they number about a million members, in 
ral the most skilful and superior workers in lactones and 
mines; and from time to time even unskilled workmen have 
been organized In trade-unions, though to maintain them is 
difficult. The propo rti on of unionists and their families to 
non-uniom perhaps be e ttimated for the fifteen years ( 

iring which time they have been at the height 

of their effk; it about one unionist to three noil- 


unionists ; though such calculations are very rough, and 
the strength or weakness of trade-unions varies in the most 
capricious way in different districts and trades. (L. Price, 
Industrial Peace, p. 101.) Some unions number ten, twenty, 
even forty thousand, while others are small. 

The benefits which trade-unions have conferred,, 
or helped to confer, on the English artisans are 
many : higher wages, shorter hours of work, removal 
of middlemen (subcontractors or sweaters), removal 
of many oppressive fines and penalties, check on 
brutality of foremen, support to members out of 
work. Also they have striven by enforcing appren- 
ticeship and limiting the number of apprentices to 
prevent the lack of employment ; they have given 
mental and moral training to their members, teach- 
ing them to debate and reason, to act in concert, to 
make provision for the future ; and though they 
may have caused many more strikes than they have 
prevented, they certainly have been a prerequisite 
for boards of conciliation and arbitration for settling 
all disputes between masters and workmen without 
any strikes at all. 

Nevertheless, trade-unions have in their nature 
several weak points. For first, where friendly rela- 
tions exist between masters and men, the introduction 
of trade-unions is likely to bring discord. And in 
fact the unions have opposed long engagements and 
permanent ties, and have favoured the doctrine that 
masters and men are merely two equal parties to 
a contract, like a buyer and seller, and that no 
deference or loyalty is due on one side, or care and 
protection on the other. And the antagonism is 
perpetuated by the masters forming no part of the 


union ; whence it follows that the common interests 
of both masters and men remain generally out of 
sight, while their opposing interests remain ever in 
full view. 

Secondly, trade-unions being mere voluntary asso- 
ciations, their duration is precarious ; they can apply 
no legal compulsion to carry out their decisions, 
and thus are tempted to resort to illegal compulsion; 
while their habitual weapon the strike, that is, a 
concerted and simultaneous cessation of work till 
some demand is granted, is a great injury to national 
wealth, a cruel hardship to many innocent third 
parties, a grave occasion of disorder, and a source 
of bitter enmities that may become highly dangerous. 
Hence strikes are only justifiable where they aim at 
some benefit for the workmen which it is unjust in 
the master to refuse, and which can only be obtained 
in this way ; and it is only too likely that these two 
conditions will not be fulfilled, and that the strike 
will in consequence be an injustice. (See Father A. 
Lehmkuhl, in the Stimmen ans Maria-Laach, January, 
1890.) And in some industries and employments 
which minister to the daily wants of society, strikes 
produce such inconvenience, that if they became 
frequent, no civilized Government could endure 
them ; for example, general strikes of coal-miners 
or dock-workers, or even local strikes of workers on 
railways, on tramways, or in gas-works. 

'Thirdly, trade-unions can only be applied with 

I difficulty to those who need them most, 

namely, the unskilled and poorer labourers, who 

ible \<> make a favourable contract with 


the employer. The lower also the wages and the 
more frequent the want of employment, the more 
difficult the action of a trade-union as a friendly 

Because of these three weak points it is dubious 
whether trade-unions, though they have been, per 
accidens, of immense benefit to society in England, 
have been so in America or France ; and in their 
present shape even in the British Isles, they are at 
best palliatives, not remedies for social discord, and 
seem likely to assume a shape when they will no 
longer be palliatives, but provocatives. 

To avert strikes and the consequent injury both 
to masters and men, Boards of arbitration and concili- 
ation have sometimes been established where the 
men have been sufficiently well organized in trade- 
unions to be dealt with as a body. These Boards 
are composed of representatives of men and masters 
with full powers to settle all past disputes and 
arrange all future questions of work and wages. It 
has been found possible to settle in this way the 
most complicated tariffs and details in the hosiery 
trade at Nottingham, where the wages per piece in 
the case of six thousand different articles have been 
fixed ; and again in the manufacturing iron trade 
of the North of England, where there have been 
great fluctuations of the trade and variations of 
prices during some twenty years. 

When once set up these Boards, by appointing a small 
committee of inquiry, are able to have most disputes settled 
without being brought at all before the Board. Thus during 
seventeen years up to 1886 in the North of England iron trade 
the standing committee had held 276 meetings and adjusted 


nearly 800 disputes, while the Board had met 97 times, and 
only in 17 cases had had recourse to arbitration (L. Price, 
Industrial Peace, p. 37), which is the court of final appeal after 
conciliation has failed. Arbitration under such circumstances 
loses many of its difficulties ; for a conciliatory attitude of the 
two parties has already been secured, and both recognize 
that the state of business, the costs of working, the carriage 
and the selling price on the one hand, and that the decent 
existence and customary wants of the workmen on the other 
hand, have to be considered. Where there are no Boards 
the difficulties are much greater, and it much depends on the 
personality of the arbitrators whether their award is accepted 
and observed. The action in recent years of the Catholic 
Archbishops of Westminster and of Dublin in allaying 
disputes, is well known ; and indeed, wherever the Catholic 
Episcopacy is not under the control of the Civil Power, they 
serve, from the fact of being drawn from every class, as the 
natural intermediaries between rich and poor, and this in the 
nineteenth century no less than in the fourth century. To 
return to the Boards of conciliation, their work has been 
sometimes facilitated by the plan of sliding scales, that is, the 
regulation of wages in automatic fashion according to prices 
ascertained at certain intervals, as in the coal trade of Durham 
and Northumberland. But there are difficulties in the appli- 
cation of this contrivance in many industries, and the point 
of importance is whether the masters and men agree to use 
conciliation, not whether they agree to use a sliding scale. 

Excellent however as the work of conciliation 
has been, it is valuable chiefly as having shown to 
an unbelieving age how the fixing of fair wages is 
no hopeless task, but attainable in the most com- 
plicated and fluctuating industries. In itself, such 
conciliation is no solution of the antagonism of 
masters and men that afflicts us ; for it is precarious, 
being liable at any time to be abandoned ; it has 
no legal power to enforce its decisions ; and it 
apposes and crystallizes antagonism, instead of 

binding together the employers and the workmen 

in each factory as one body with common interests. 

Hence with the growth of socialism as a prevalent 


opinion, there seems risk that conciliation in its 
present shape will not only fail to spread, but decay 
before the greater attractions of socialistic govern- 
ment. How it can assume another and better shape 
we shall see in the eleventh chapter. 

It has been well said of Boards of conciliation that they 
do not change industrial divisions from being horizontal as 
they are now, to being perpendicular as they were in the 
days of the guilds. Still less able than these Boards to allay 
social antagonism, are legal courts of arbitration such as were 
established by Judge Kettle at Wolverhampton to settle 
disputes without a strike. Delegates from trade-unions and 
masters' unions met, and formed a court, obedience to whose 
decisions could be enforced at law, because both parties had 
legally contracted to obey. These courts did not last many 
years ; and we have not introduced into England the conseils 
de pr nd" homines of France, Belgium, and Germany, excellent 
legal institutions for settling amicably, cheaply, and promptly, 
by a court of masters and men, disputes between them 
respecting past contracts ; but no means of settling disputes 
on future wages and terms of work; and thus carrying us a 
very little way towards industrial peace. 

Joint-stock companies have sprung up and grown 
luxuriantly under the favourable technical and legal 
conditions of recent years till they have covered 
Western Europe and America. They are most 
conspicuous in works requiring a colossal capital, 
and where colossal dimensions and uniformity of 
management are of the greatest advantage, such as 
railways, steam-packet services, docks, canals, the 
supply to large towns of water, gas, and electricity, 
and the business of banking and insurance ; but the 
joint-stock principle has been found so convenient 
that it has extended beyond these limits to almost 
every kind of manufacturing and commercial under- 
taking, and sometimes even to agriculture. How 


the shares of joint-stock companies are dealt with 
on stock exchanges, and the abuses connected with 
such dealing, have been already explained in the 
tenth chapter of the previous Book ; and how the 
holders of the shares and receivers of dividends are 
in general in the position of rentiers receiving rents, 
not of entrepreneurs receiving profits, has been 
explained in the third chapter of the present Book. 
The point of importance regarding social relation 
is that by the multiplication of joint-stock com- 
panies multitudes of workmen have as their master, 
not an individual, but a company. This has a good 
and a bad side. Socialistic and other writers have 
emphasized the bad side : how all friendly personal 
relations of masters and men are dissolved by joint- 
stock companies, how people can live from property 
without the smallest care or superintendence, and 
without the least recognition of any responsibility 
for its proper management or for the proper treat- 
ment of the work-people at work on it ; how the 
actual managers and real masters with whom the 
work-people come in contact, are like ruthless agents 
or subcontractors, and have as their business to 
provide the shareholders with the largest possible 
dividends, and to treat the workmen simply as 
machinery from which the greatest gain is to be got 
at the smallest cost. And these ugly relations, this 
joint-stock capitalism, can be fitly described by the 
ugly phrase: the universalization of absenteeism. 
But this is a one-sided view. Such ill-treatment 

of the workmen 1 \>> > ~\\>\< , ;m<l too often lias 1>< < 11 

actual; hut is no necessary consequence of joint- 


stock companies, any more than those other abuses 
in their formation, those frauds of promoters and 
stockbrokers, already described. No doubt the 
complete separation of revenue from the property 
from which it is drawn and from the responsibilities 
attached to the management of it, is true of the 
dividends of joint-stock companies; but in this they 
are not alone ; there are numerous other kinds of 
rents, such as royalties, ground-rents, annuities, 
interest from loans, and from public funds, in which 
there is the same separation of revenue from 
management; and dividends can be justified on 
the same grounds as all these other rents. Nor 
in a country where there is a religious spirit and 
a humane and reasonable Government is it more 
difficult to secure the fair treatment of the working 
classes on the railways and steamships, in the shops 
and workshops of joint-stock companies, than on 
the property of private individuals. Indeed it is 
often less difficult because the companies are more 
permanent and visible. 

Pitfall. To be appalled and horrified at the wonderful 
growth of joint-stock companies, and to wish to check or 
destroy them, instead of reforming and baptizing them. 

Trusts, sometimes known as syndicates or cartels, 
are associations of business firms and of joint-stock 
companies, engaged in manufactures, mining or 
trade, and having as their object to check competi- 
tion and to regulate production and prices. In the 
United States, the country of their origin and 
greatest development, the various individuals and 
bodies associated in the trust place their powers in 


the hands of a board of trustees who have the 
supreme management of the quantity and quality 
of goods to be produced and of the prices to be 
charged. This new form of association, only some 
twenty years old, has spread rapidly and replaced 
in many departments of trade the previous keen 
competition among producers or sellers, thereby 
causing market prices to be supplanted by monopoly 

In the United States in February, 1888, the production of 
the following articles was more or less completely in the 
hands of trusts : "petroleum, cotton-seed oil and cake, sugar, 
oatmeal, pearl barley, coal, straw-board, castor oil, linseed 
oil, lard, school slates, oil cloth, gas, whiskey, rubber, steel, 
steel rails, steel and iron beams, nails, wrought-iron pipe, iron 
nuts, stoves, lead, copper, envelopes, paper bags, paving pitch, 
cordage, coke, reaping and binding and mowing machines, 
threshing machines, ploughs, and glass; " and by June, 1889, 
could probably be added " white lead, jute bagging, lumber, 
shingles, friction matches, beef, felt, lead pencils, cartridges 
and cartridge shells, watches and watch cases, clothes- 
wringers, carpets, coffins, . . . dental tools, lager beer, wall- 
paper, sandstone, marble, milk, salt, patent leather, flour, 
and bread." (C. W. Baker, Monopolies and the People. New 
York, 1890, pp. 23, 24.) The most famous and gigantic 
among all is the Standard Oil Trust, monopolizing the supply 
f petroleum. 

These combinations have been caused by the 
desperate struggle of competing traders and pro- 
ducers, and their natural desire to exchange a state of 
commercial war with the dubious chance of victory, 
for a state of peace with secure income and probable 
enrichment. They have been rendered possible by 
the concentration of industry in particular districts 
and in immense factories: such combinations would 
have been impossible among small and scattered 
tradesmen. The benefit to those who join in these 


trusts is manifest by their rapid spread in America 
and extension to Europe. But many people, like 
a certain President of the United States, regard 
them with " unutterable hatred," and would have 
their " baleful operation " checked by law. They 
are undoubtedly monopolies, and are accused of 
three principal offences : charging a monopoly price, 
reducing production in order to keep up prices, and 
thirdly, practising discrimination, that is, favouring 
some dealers and boycotting or handicapping others, 
according as they do or do not conform to the 
dictates of the trust. 

The large charge is undoubtedly true. Thus " the Whole- 
sale Grocers' Guild of Canada, which includes 96 per cent, of 
the Dominion's wholesale traders, entered into a compact 
with the Canadian sugar refiners, who agreed that dealers 
outside of the guild should be charged 30 cents per 
ioolbs. more for sugar than those who were in the guild. In 
November, 1887, fourteen members of the guild were expelled 
and were compelled to pay the higher price." (Baker, Ibid. 
p. 76.) Again, "a combination among manufacturers of 
railway car-springs, which wished to ruin an independent 
competitor, not only agreed with the American Steel Associa- 
tion that the independent company should be charged ten 
dollars per ton more for steel than the members of the 
combine, but raised a fund to be used as follows : When the 
independent company made a bid for a contract on springs, 
one of the members of the trust was authorized to underbid 
at a price which would incur a loss, which was to be paid for 
out of the fund. In this way the competing company was to 
be driven out of business." (Ibid. p. 85.) 

The second and first charges against trusts are really 
one ; for limitation of supply, as already explained when we 
examined the nature of monopolies, is necessary to secure 
a monopoly price. And in truth prices have often been 
raised, as of linseed oil in 1887 from 38 cents per gallon to 
52 cents, and this price kept up through 1888. And produc- 
tion has often been restricted, nay, even locally suspended, 
and mills have been closed, like the Vulcan steel-rail mill 
at St. Louis whose owners received an enormous annual 


subsidy for not making rails ; nay, supplies of milk have been 
bought up and spilt before they could reach New York or 


But the defenders of trusts answer : (a) That 
exclusive dealing is not peculiar to trusts and is an 
incidental abuse, belonging to their growth rather 
than to their maturity, (b) That limitation of 
supply and rise of prices where it has happened has 
only anticipated and has mitigated what must have 
occurred in any case by the ruin of many traders 
and the closing of bankrupt factories, (c) That the 
saving in production by single management is so 
immense that already in several cases there has 
been reduction of prices with the development of 
trusts ; and that there is a great possible field for 
further reduction. 

Such savings are the less cost of advertising, of insurance, 
of storage, of transport ; fewer salesmen and buyers required ; 
greater ease of introducing machinery ; and they are most 
conspicuous where carriage is a great part of the cost, as in 
the case of mineral oil or telegraph messages. Hence the 
two most conspicuous American trusts are the Standard Oil 
Company, which controls several thousand miles of pipes 
for the conveyance of petroleum, and the Western Union 
Telegraph Company which monopolizes the greater part of 
the telegraph business in the States; and these trusts have 
greatly reduced the price respectively of oil and messages. 

The defenders of trusts make further answer : 
(d) That the motive for adulteration and the making 
of inferior and thus wasteful articles is greatly 
kened : the quality of linseed oil they say has 
:i much improved by the trust, (c) That the 
present irregular and secret combinations of middle- 
men, who get between producers and consumers 
(witness the retail price of butcher's meat, of 


vegetables and fruit, and of fish in London), are 
robbed of their evil power, as the trust is inde- 
pendent of them, and can fix (like the Wholesale 
Grocers' Guild in Canada) the selling price for the 
retail dealers. 

Our conclusion is like that on joint-stock com- 
panies : not abolition, but reformation. Let us 
compel publicity of all prices, all charges, all pay- 
ments, so that discrimination may be checked ; let 
local or central authorities have a voice in the 
settling of the price lists, and forbid sudden, great, 
and uncalled-for changes of prices. This is better 
than desperate attempts to reverse the current of 
industry, to preserve free competition, and to secure 
a market price. Monopoly we must needs have in 
many things, but not monopoly prices. 

Indeed in many cases there will be no proper monopoly ; 
for this implies a single buyer or seller on one side opposed 
to a number of competitors on the other side, in other words, 
one-side competition. But when one combination is dealing 
with another there is no competition at all. 



As the fourth among the principal forms of social 
relations we have placed mobile or unregulated rela- 
tions, namely, where contracts of sale, hire, and 
service, or the condition of servants and work- 
people, are neither regulated by associations, nor by 
customary law, nor by positive law, but are left to 
be settled by the individual parties in each particular 
case. This condition of things does not indeed 
mean that there are no legal regulations on these 
matters, for no civilized society could exist without 
them. On the contrary, it implies enforcement by 
the Government of private agreements, the inter- 
ference of Government to check the grosser forms 
of fraud and violence, the voice of Government to 
settle, and the hand of Government to defend the 
rights of ownership. And the Government may 
interpose further, forbidding particular contracts 
like selling oneself or one's children into slavery, or 
binding oneself with others in industrial associa- 
tions. Indeed, without such prohibitions, there is 
likelihood of mobile relations being supplanted in 

ure by servile relations, as in Republican 

Kome, or by corporative relations, as in the United 


States. Nay, even the practice of particular trades 
may be forbidden, like growing tobacco in the 
British Isles, and yet industrial relations be still 
unregulated. For what should be meant by applying 
to industrial relations the term mobile, or unregu- 
lated, or instable, or individualistic, is that for the 
great mass of goods any one may ask what price he 
chooses, without interference of the Government or of 
any association, and may likewise without any such 
interference make and sell them in the manner he 
chooses ; and regarding the great mass of trades, 
exercise which or how many soever he chooses, and 
learn and teach them in the way he chooses ; and 
regarding the great mass of workmen and servants, 
pay them what wages he chooses, and fix their 
hours of work, their holidays, meal-times, and all 
the conditions of their labour as he chooses, and 
without incurring any responsibility for their future 
maintenance, and by only giving a reasonable notice, 
dismiss them as he chooses. 

Where such unregulated relations are prevalent we may 
call them a system of laissez-faire, if only we remember that 
laissez-faire is often used to mean only the absence of regula- 
tion by Government, not the absence of regulation by com- 
binations. Again, we may speak of the mobile regime as the 
competitive system, if only we remember the definition of 
competition, and that besides free competition, there can be 
one-sided competition. (Supra, p. 186.) But we must not call 
it, like Adam Smith, the system of natural liberty ; for it is not 
more natural than any other system, and liberty is a political 
and ambiguous term. Nor must we call it freedom of industry 
and enterprise or economic freedom ; for the word freedom is 
both eulogistic and ambiguous. 

On the other hand, we must not confuse competition with 
covetousness, and lay to the charge of mobile or competitive 
relations all the wicked works of one of the seven deadly sins. 
No doubt the noted and shocking saying that " adulteration 


is a form of competition," has helped to create the confusion : 
but it is a confusion. For competition may be perfectly 
honest and virtuous, nay, informed by high motives and 
conducted to the general good (as made evident in the 
Second Book). But economic covetousness is when a man 
in his contracts and dealings with others acts with the sole 
aim of getting the greatest possible pecuniary gain without 
regard to God or man, except man in the character of officer 
of criminal law ; and thus is ready to take the utmost 
advantage of the distress, the simplicity, the weakness, or 
the vices of the other party, ready to lie, cheat, bully, 
oppress, and even, where it can be done with safety, to 
plunder, torture, and slay ; as when the negro slaves in 
Jamaica were worked to death, and replaced by fresh ones 
imported from Africa. Such covetousness and its fruits, 
though conspicuous in the competitive system (as this 
chapter will show), are not confined to it, but are seen also 
and as conspicuously amid slavery, seen also amid feudalism, 
witness the excoviatorcs rusticorum of the mediaeval chronicles, 
and amid corporations, witness the deeds of some of the 
great German Handelsgesellscliaften or trading associations of 
the early sixteenth century, and of some of the American 
trusts of to-day, who follow the maxims of a noted mono- 
polist, " that there is no d d sentiment about business; 

that he knows no friendship in trade ; and that if he gets 
his business rival in a hole he means to keep him there." 
(Fabian Essays, p. 95.) Nay, even to the lofty regions of 
official life, covetousness creeps up, witness the deeds of the 
Roman publicans in the first century, and of the East India 
Company's officials in the eighteenth. 

In dealing with mobile relations it is above all 
things needful to distinguish between partial mobility 
limited to particular fields of action, and prevailing 
mobility. It would be bad, indeed, were everything 
regulated, all running in grooves, no field for indi- 
vidual peculiarities and energies. Already in the 
Oil Exchange we have amply shown the 
Ial effect of a genuine market where prices 

tied by free competition, notably the elimina- 
tion of incompetent producers and Indifferent con- 
sumer. But to imagine all industrial relations 


are of the character of buying and selling in a 
market, is one of the most portentous of the 
delusions of science : the practical results one of 
the most dreadful pages in history. 

The grand example has been England in the 
first half of the nineteenth century. Coming to par- 
ticulars, the working classes employed in her vast 
coal-mines, woollen factories, and cotton factories 
during the reigns of George IV., William IV., and 
the early years of Victoria, suffered from the 
following evils : 

(A) Insufficient wages: the masters being desirous 
of reducing them to a minimum, and being able to 
do so because the Statute of Apprentices had been 
repealed, because the relative demand for labour 
had, by the introduction of machinery, been lessened, 
and because the supply of labour had, by women 
and children being made into labourers, by the 
introduction of piece-work, and by the lengthening 
of the hours of labour, been increased. 

(B) Over-work : when precisely by the change 
from easy-going petty rural workshops to the high 
pressure of the factory, the work had become 
much more exhausting, instead of work-time being 
shortened it was lengthened, generally to over twelve 
hours a day, sometimes to sixteen or more, and 
the workmen brought down to the level of driven 
oxen, without leisure for the least of the higher 
needs of man. 

(C) Divers frauds and extortions : notably fines 
and confiscations of wages on all sorts of excuses, 
and the truck system whereby payments were made 


in orders on tradesmen who were in collusion with 
the masters, and who gave goods to the workmen 
worth less than the nominal money value of the 

(D) Utter insecurity for the future : liability 
at any time to arbitrary dismissal ; likelihood of 
long periods of being unemployed at each period 
of slack trade ; absence of any one to care for their 
welfare or be a guardian to their children. " In the 
new cities, the old warm attachments, born of 
ancient local contiguity and personal intercourse, 
vanished in the fierce contest for wealth among 
thousands who had never seen each other's faces 
before. Between the individual workman and the 
capitalist who employed hundreds of ' hands,' a wide 
gulf opened : the workman ceased to be the cherished 
dependent, he became the living tool of whom the 
employer knew less than he did of his steam-engine. 
The breach was admitted by the employer, who 
declared it to be impassable. ' It is as impossible,' 
said one, ' to effect a union between the high and 
low classes of society as to mix oil and water ; 
there is no reciprocity of feeling between them. 

. . . There can be no union between employer 
and employed, because it is the interest of the 
employer to get as much work as he can, done for 
the smallest sum possible.'" (Toynbee, Industrial 
1 dution, pp. 190, 191.) Occasional discord, in- 
1, between servants and masters has ever been 
and ever will be; but here it was habitual and a 
matter of coax 

(E) Cruelty to children ! horrible, incredible, 


unparalleled even in the history of pagan slavery,, 
boys and girls of tender age set to work for any 
number of hours by day or night, in any place or at 
any work, however unhealthy by heat or damp or 
dust or fumes, bent or crouching or burdened, with 
no fit intervals for rest or meals, forced along by 
blows, their only remedy being to sicken and die ; 
and then there were crowds to take their place : 
children of parents who looked on them as instru- 
ments of profit ; children of parents — the most 
numerous body — so helpless and poverty-stricken 
that they could not give up any source of earnings ; 
children, finally, sent by contract from the work- 
houses and left without protection to the mercy of 
employers who knew no mercy. Nor were such 
cases of cruelty exceptional, such as in all social 
organizations must be expected as the occasional 
outbursts of corrupted nature ; but were general,, 
normal, a matter of business and calculation. All 
of which can be duly seen in the sober pages of 
Parliamentary Reports, notably in the two celebrated 
Reports in 1842 and 1843 of the Children's Employ- 
ment Commission, that aroused the tardy horror of 
England and Europe. 

(F) Immorality : the worst evil of all, the mines 
and factories being dens of iniquity, and the 
miserable and crowded homes in the manufacturing 
towns often little better. On which let it suffice to 
record that the last excesses of human degradation 
were reached and abominations practised that the 
Royal Commissioners rightly refrained from publish- 
ing. And remember again the terrible fact that this 


corruption was not exceptional but characteristic. 
Half England had become a hell on earth. 

It is not surprising that among observing men 
who knew the real condition of the work-people, 
a catastrophe was held to be at hand, a social 
revolution inevitable. "We are engulfed," said 
Dr. Arnold, " . . . and must inevitably go down 
the cataract." (Toynbee, Industrial Revolution, p. 193.) 
And they were half right ; for some change was 
inevitable : but they were wrong in thinking that 
the change must come by social war and not rather 
by social reform. What really happened was that 
a gradual but continuous improvement in the con- 
dition of the factory and mining population set in 
and continued for some forty years as the result of 
the simultaneous growth of effective trade-unions and 
effective factory laws. Only mark, the improvement 
was not an improvement of mobile relations, but 
their elimination, a mixture of corporative and 
official relations being put in their place. And 
where mobile relations either in rural or in manu- 
facturing industries have been continued or have 
been introduced, the same causes have produced 
with terrible precision the same effects, witness the 
Reports of the second Children's Employment Com- 
mission a quarter of a century ago, and the evidence 
on the " sweating system " in our own day. 

The terms sweating system and sweated industries 

originally implied oppression of workmen by subcon- 
tractors, whose interest was to force the men under 

them to utmost physical exertion. It Is now often 
a ■ 'I ;n a wider sense, wherever there j qo1 a din i t 


hiring of workmen by large firms or companies ; 
sometimes even to indicate any oppression of the 
industrial classes. But whatever the terms used, 
the facts remain, that in unregulated industries 
where the Factory Acts are escaped or evaded and 
where trade-unions are absent or weak, we see 
multitudes working inhuman hours with unremit- 
ting toil for wages seldom sufficient and often a 
mockery ; working, too, in horrible insanitary con- 
ditions, dwelling huddled together in miserable 
overcrowded rooms ; uncertain, even under such 
hard conditions, of finding employment ; and all 
this wretchedness after thirty years of peace, in 
the very world's centre of accumulated wealth and 
commercial power, in the very seat of world-wide 

Examples of English work-people at present or till lately 
under mobile relations and consequently exposed to some or 
all of the above-named evils, are to be found in many large 
towns among the workers in the cheap clothing trade and 
among the shop assistants ; also in London among the shirt- 
makers, workers in the fur trade and boot trade, cabinet- 
makers, chair-makers, polishers and turners, umbrella-makers, 
dock labourers, and female workers in the jam, rope, and 
match factories ; also in Sheffield among the makers of cheap 
cutlery, and in the Black Country among the nail and chain 
workers. And other examples could be added. 

Although England has been conspicuous both 
as the promoter of unregulated industrial relations 
and as an example of their results, her case is not 
the only one. The excessive misery of rural Ireland 
in the years which culminated with the great famine, 
the cruel over-work revealed a few years ago in 
the factories around Vienna, are illustrations of 
the same phenomenon ; and these and many other 


examples point to the same conclusion, that mobile 
relations, if widely extended and applied to distri- 
bution, lead to conditions so dreadful as to be 
intolerable. Hence factory legislation has become 
such a necessity of civilized States as to form the 
subject-matter of international legislation ; hence 
also the destruction of old corporative bonds of 
union has been followed after an interval of mobility 
by the formation of fresh combinations, often 
defective indeed, but still combinations; hence, 
again, the condition of the rural population, their 
misery and decay over great portions of Europe, 
is at last opening the eyes of statesmen to the need 
of a change. 

Recent reports from Japan, where a mobile organization 
was in our own times suddenly substituted for a feudal, point 
to the same conclusion ; for we hear of the aggregation of 
population in great towns, accumulation of capital in few 
hands, rapid decrease in the number of small landowners, 
rapid increase of the number of persons receiving public relief. 

Pitfalls. (1) To praise the beneficent and stimulating 
effects of universal mobility, in sublime ignorance of the 
most pertinent facts. 

(2) To be so appalled by these facts as to close up every 
field for individual action, and make all industrial relations 
either corporative, or official, or a combination of the two. 

Professor Walker, too acute to fall into either of these 

pitfalls, has a theory of his own that deserves attention. He 

forward to " perfect competition," not only in production, 

but also in distribution, as the harmonious and beneficent 

order of the economic universe. (Political Economy, p. 263.) 

ompetition he not merely what we b 

called fr( 1 to one-sided competition, and that 

there, be no combination and no customary 1 

r leases, but also thai there be do Bentiment as of 
patriotism, charity, gratitude, or vanity, (p. 92.) He thinks 
that • imic mobility, where each and 

man for bin. Ml unremittingly seek and unfail- 

ingly fmd In. I<< t 1.. it only absolute security 

equitable and tx bution. (p. 377.) 


Now his mistake is not that of the old optimist laissez-faire 
economists, that competition as at present existing does work 
in this beneficent way ; on the contrary, his able and well- 
known work on the Wages Question expressly sets forth the 
possible degradation of the labourer, that is, how over-work 
and under-pay may by degrees render workmen physically 
and morally inefficient, and thus no longer able to earn a 
decent subsistence, or able to bring up their children to 
anything better than a degraded and brutalized life ; and 
how, in fact, this has happened to great bodies of workmen 
in Europe. 

His mistake is rather in imagining that perfect mobility 
of work-people and capital can become possible by education, 
free trade, free land, and universal suffrage ; and that the 
ideal for the future implies the dissolution of bonds between 
men instead of their reconstitution by Church and State. In 
reality with human nature as it is, the prevalence of this 
" perfect competition," even if it were desirable, is wholly 
impossible. The probable origin of Professor Walker's view 
is to be found in the peculiar circumstances of parts of the 
United States some fifteen years ago, where there was 
perhaps more free competition than ever before or since ; 
and he did not see that it was an exceptional and temporary 



The last on our list of social relations may be called 
official, and this term means that the relations of 
buyers and sellers, of employers and employed, of 
masters and servants, of rich and poor, are regulated 
by Government, whether it be local or central Govern- 
ment, whether the regulations be part of positive or 
customary law. Thus the regulation of rural wages 
in England in the eighteenth century by justices 
of peace, and their administration of the poor law 
before 1834, were matters of local Government ; 
whereas our present factory laws, alike for all 
England and worked by Government inspectors, 
are matters of central Government. Again, the rules 
and regulations of a Russian village under the local 
government of the Mir are mostly customary, and 
so also are many of the caste rules in India regu- 
lating trades ; whereas the English modern poor 
law and the German laws on compulsory national 
insurance arc positive, not customary. But in all 

l alike, the relations arc neither feudal, 

rvile, nor corporative, nor mobile, but official. 

Let us examine some examples of such relations. 


Under the general title of factory laws (using a 
part for the whole for want of a word like the 
German Arbeitcrschntzgcsctzgcbimg), let us comprise 
that department of legislation, which after feeble 
and ineffectual beginnings, grew to be really impor- 
tant and effective in Great Britain about the middle 
of the nineteenth century, and has spread to all 
civilized countries where production is carried on 
in large factories with elaborate machinery and 
steam power. In general such legislation distin- 
guishes all or some of the following six categories 
of work-people : (i) children, (2) lads, (3) girls, (4) un- 
married women (5) married women, and (6) adult 
men ; it applies to all work in mines, quarries, brick- 
fields, large factories using mechanical power, and 
workshops other than those domestic ones where 
the family work in their own home ; and its multi- 
form enactments can be grouped under three heads 
as follows : 

First, general sanitary and safety regulations 
affecting all categories of workers, for example, com- 
pelling the provision of sufficient air, light, ventila- 
tion, fans to remove dust, requisites for washing, 
fencing round machinery. 

Secondly, prohibition of certain work to certain 
categories of persons on moral or sanitary grounds, 
for example, the prohibition of many unhealthy trades 
to children absolutely, and to lads or girls unless 
medically certified ; prohibition of work in mines to 
children, girls, and women ; prohibition of factory 
work to married women for some weeks before and 
after childbirth. 


Thirdly, regulation of the hours of work for some 
or all of the six categories of work-people. Hitherto 
those directly protected in this way by the law have 
been mainly children, lads, and girls. In England 
they have been given the Sunday rest, the Saturday 
half-holiday, regular intervals every day for rest and 
meals, and protection from night work. Sometimes 
these regulations have been extended to both cate- 
gories of women ; sometimes (not in England) to 
adult men ; but even without any such legal exten- 
sion, it has come about in a great many factories, 
where the simultaneous labour of youthful and adult 
workers is necessary, that the latter class have in 
fact profited by the protection which at law is only 
granted to the former. 

In England from 1802 to 1833 some partial and ineffectual 
Factory Acts were in force; from 1833 to 1850 was the decisive 
time of struggle : on the one side, the work-people, the philan- 
thropists (Lord Shaftesbury, then known as Lord Ashley, 
being their great leader), and some of the land-owning class ; 
and on the other side the manufacturing middle class, the 
orthodox Political Economists who in the name of science 
forbade interposition, and the statesmen who believed in them 
(Sir Robert Peel, John Bright, and Lord Brougham con- 
spicuous among them). Protective Acts were passed, and 
evaded, and amended, and evaded again ; but the final issue 
that in the textile industries considerable protection to 
the work-people was secured, and that in the mines the worst 
remedied. Since 1850, as it gradually became 
evident that the factory laws were not followed, as had been 
; dea, by the ruin of British industry, and 

what did follow was the moral and physical regeneration 
of the textile ad the miners, these laws have been 

ided to one industry after another, uotably after the 

q oi inquiry into the 

and ' hildren, by the W01 kshop 1 ' 

Vet, extendi] th< petty industry, and by the 

. both passed in [8671 Bui the r< cent 

m the Sweatio m, Bhow, as 


already I have said, that the extension of the Factory Acts has 
not yet gone far enough. 

Other countries have followed the example of Great 
Britain ; but at the time of the Berlin Labour Conference 
in iSgo, Switzerland was probably the only country with 
legislation that, in the working as well as in the letter, was 
more effective than our own ; and the recommendations of 
that Conference amounted to little more than the recom- 
mendation of the English factory laws, with the addition that 
the limit of age for children working in factories should be 
raised from ten to twelve, and in mines from ten to fourteen ; 
and that mothers should not work in factories till four weeks 
after their confinement. 

Admirable as the effect of factory laws in the 

past has been, great as is the need of their extension 

to unregulated industries, much as they are capable 

of improvement in their substance and execution 

(more factory inspectors, for example, is a crying 

need), let us not forget that their character is limited 

and negative, being merely the prevention of certain 

grave abuses in the methods of work, and that the 

central Government undertakes to prevent these 

abuses in default of any other means of prevention. 

They do not profess to solve the social question, or 

to secure for the work-people reasonable wages, 

permanent employment, and decent homes ; only to 

put them in a position to make proper use of those 

wages, of that employment, and of those homes. 

The proposal of a universal law fixing eight hours as the 
maximum for all work in mines, factories, workshops, shops, 
and railways, though it may bear the appearance of a factory 
law, is quite different in its character. The difference is not 
that it protects adult men ; for a man is entitled, as well as a 
woman or a child, to the opportunity of living a decent life 
according to his station ; and in fact many of the actual 
provisions of our factory laws do directly and avowedly 
protect adult men, namely, the sanitary and safety regula- 
tions, as well as the Merchant Shipping Acts, which are 
virtually Factory Acts applied to seamen. And if the Eight 


Hours Bill applied only to those industries, such as working 
in some mines, where to compel or induce a man habitually 
to work over eight hours in such conditions, would be an act 
of cruelty, the Bill would be part and parcel of a proper code 
of factory laws. But such industries are quite the exception ; 
and we cannot maintain that the adult men in the Lancashire 
factories working ten hours a day, with a Saturday half- 
holiday and Sunday rest, are cruelly overworked ; it would be 
absurd. Hence to reduce by a general law their hours of work 
cannot be justified on the same grounds as the Factory Acts : we 
require other grounds. And if we assume that socialism is 
untenable, as we rightly may from the arguments of the sixth 
chapter, we shall look for any such grounds in vain. 

Another conspicuous example of official relations 
is to be seen in those prevailing in England for 
some two centuries under the statute of the 5th of 
Elizabeth amended by the 1st of James I., and 
known as the Statute of Apprentices. An apprentice- 
ship of seven years was required for the practice of 
any trade either as master or workman. Any house- 
holder either in a corporate or market town might 
take apprentices, who could not, however, be over 
twenty-one years of age, and whose parents had to 
possess a certain amount of wealth. And for every 
additional apprentice beyond two, the master was 
bound to employ a workman (journeyman). Gene- 
rally such workman was to be hired for a year, and 
a quarter's notice needful on either side. Hours of 
work were to be twelve in summer and from dawn 
to 'lark in winter. Wages were to be fixed annually 
for unskilled as well as skilled labour, by the justices 
of \» u< <■ and by the town magistral 

On the whole tliis system worked well. The 

i of wages was a continuance of previous 

that had been passed since the middle of the 


fourteenth century, when half the population had 
been swept away by the Black Death, and the old 
feudal organization was broken up. Naturally, much 
depended on the character of the justices, who were 
in fact official arbitrators between masters and men. 
And the best proof of their ordinary justice and 
humanity is the fact that the working classes 
struggled eagerly to prevent the repeal, in the early 
years of the nineteenth century, of the Statute of 
Apprentices, though they struggled in vain ; and 
this Magna Charta of labour being lost, they sunk, 
as already described, into utmost misery. The 
new inventions, indeed, and the transformation of 
industry (described in the fifth chapter of the First 
Book), rendered some great modifications in the 
statute necessary, some new legislation or new 
organization suited to the times : what was not 
necessary was anarchy and disorganization, leaving 
the strong to prey at their good pleasure on the 

The English poor laws from the time of Elizabeth 
are another and still more famous example in our 
own land of official relations. The melancholy 
occasion of these laws was the destruction root 
and branch of the old institutions of charity, notably 
the plunder and suppression under Henry VIII. of 
between six and seven hundred monasteries, which 
were the great centres of charity in those times, 
and of some five hundred hospitals attached to the 
monasteries, and the total and ruthless spoliation 
under Edward VI. of some thirty thousand religious 
guilds, which were the great institutions for thrift 


and mutual help. The poor laws, almost a necessity 
when first passed, and for some time perhaps doing- 
more good than harm, nevertheless contained germs 
fruitful for mischief. Government was made the 
habitual giver of relief, not a mere reserve force of 
aid for great emergencies ; those not responsible for 
distress were made to pay alike with those who 
were ; the ties of service, of kinship, and of asso- 
ciation were relaxed by a man's masters, or kindred, 
or trade, being no longer primarily responsible for 
his poverty. And thus the law which seemed so 
humane became the occasion of severity. One of 
the first difficulties was the question which parish 
was to support each particular pauper ; its solution 
from 1662 to 1795 was not in name but in fact the 
adscriptio glcbce of the poorer classes of England by 
the laws of settlement, which practically bound them 
never to remove from their parish. Another evil 
in the middle of the eighteenth century was the 
destruction of cottages, lest they should become, 
as the phrase went, " the nest of beggar brats." 
Workhouses had been introduced early in the 
eighteenth century as a test of poverty ; and though 
in some cases for a time well-managed, and pro- 
viding rational work for the unemployed poor of the 
locality, in general they were mismanaged by tin 
annually elected overseers, and became centres of 
corruption. Then, at the end of the century, tin 
p< ndulum swung back from severity to laxity, the 
workhouse test was removed in 1782, th< restrictions 
on migration in 1795, and in this same year \ 
introduced the allowance system supplementing insulti- 


cient wages out of the rates. Other laws acted as 
an encouragement to illegitimacy, notably the large 
allowances granted for illegitimate children ; and 
the poor laws thus transformed took a part in pro- 
moting the misery and demoralization of rural 
England. But that part has been greatly exagger- 
ated ; and the main causes of that misery and 
demoralization were the two following : first, the 
transformation of the rural population, chiefly by 
the enclosures or appropriation of common lands, 
from the state of being proprietors or semi-propri- 
etors, to the state of a helpless proletariate living 
from hand to mouth ; and secondly, the break-up of 
the old attachment of farmers and men, the men no 
longer mess-men and fellow-lodgers with the farmer, 
but unattached hands, bound to him by no tie, and 
living a separate life as an inferior and hostile class. 
And now that the terror of revolution or of invasion 
had passed away, the pendulum swung back once 
more to severity, all the quicker from the great push 
given it by the classical Political Economists and 
their doctrine on population ; and the Poor Law 
Amendment Act of 1834 was passed, which swept 
away a pile of old abuses, and as carefully put 
others in their place. There had been confusion in 
the manner of giving relief by the parochial authori- 
ties ; in its place the Act put the new abuse of the 
centralization of the poor relief of all England in 
the hands of a Board in London, and struck a 
further blow at local self-government, and at any 
effective supervision of the poor, by making large 
Unions instead of small parishes the areas of relief. 


The Old Poor Law, as it was called, was undoubtedly 
a piece of State socialism, that is, a system that puts 
the State in the place of the family, of private asso- 
ciations, of religious bodies, of rich and powerful 
individuals, as an earthly providence for the poorer 
classes. The New Poor Law treated poverty as a 
misdemeanour, and avowedly sought to deter appli- 
cation for relief by coupling it with penalties. The 
chief penalty, and a dreadful one, was the work- 
house ; and thus England has become studded with 
workhouses, each from its very constitution, even 
when the officials are all angels, a horrible centre 
of cruelty and demoralization. And by an irony 
of fate, the great endeavour to make poor relief 
deterrent, has succeeded indeed in making it deter- 
rent to the honest poor who deserve compassion 
and help ; while it has afforded out of the public 
moneys to the degraded and the guilty, to tramps, 
and vagrants, and bad women, a refuge and an 
encouragement. And precisely those who want most 
encouragement to thrift, are hopelessly discouraged 
by the rule which makes the possession of property 
a disqualification for relief: if a poor labourer cannot 
save much, it is folly for him to save anything 
at all. 

The poor law of 1834 subsists in its main features 
to this day. But there arc many indications of 
another revulsion of opinion, and of Laxity once 

taking the place of severity. How to prevent a 

fruitless substitution once more of one evil for 

another, I hope in the n< xl 1 hapter to make plain. 

l<ave the matter for the moment, and turn 


to another and very different specimen of official 1 

Most of the villages of modern Russia are 
organized as a commune, with civil, criminal, and 
financial jurisdiction. The commune is called the 
Mir; its acting authority is the village assembly 
made up of the heads of households ; and the chief 
functions of the assembly or of its elected officers 
are as follows : 

First, to assess and levy the taxes for which the 
entire village is collectively responsible, and the 
total amount of which depends on the male popula- 
tion according to the previous census, and so far 
falls on persons rather than on property. But 
within each village the total amount is so distributed 
as in general to be in due proportion to the amount 
of land cultivated by each household ; but not 
always, as in cases where the sale of manufactures 
makes an important part of the income of the 
villagers. And remember, in a climate like the 
Russian, where agriculture is suspended for many 
months each year, a natural impetus is given to 
village manufactures. 

Secondly, to allot periodically to the different 
families of the village a share of the communal land. 
For in most villages only the dwelling-houses and 
gardens are the private property of individual 
families, while the arable and meadow land is 
owned by the Mir, which owns also any village 
pasture lands, wastes, and woodlands, though in 
fact most of these are in the hands of the nobility 
or of the crown, not of the villagers. The arable 


and meadow land is allotted for a limited term to 
particular families. This term is generally a year 
for meadow land ; but for arable land varies from 
one or two years in the Southern provinces where 
no manure is needed, to several years in the Centre, 
and many years in the North, where cultivated land 
requires manure, and in which cases those families 
who have cultivated their land well, are given back 
at the general redistribution, as far as possible, the 
same land ; while the authorities, if a new house- 
hold requires land, try to avoid any confiscation 
of improvements. For between the general re- 
distributions, when the interval is long, shares are 
sometimes transferred from one family to another 
according to their capacities and requirements. To 
be assigned more land, remember, means to have to 
pay more in taxation, and, therefore, where the land 
is poor and the taxes consequently high (according 
to the method of taxation already explained), is a 
burden, not a privilege. In such poor regions the 
village assessment of the more successful traders and 
manufacturers belonging to it, and the preservation 
of equality, can be easily effected by assigning them 
an extra share of land. Both in these regions and 
in others the delicate questions of allotment are 
settled, perhaps with much debate, but with no 
violence ; and the settlement is obeyed implicitly. 
j'/urdly, to regulate the rotation of crops, the 

times for ploughing, mowing, and other agricultural 

works, as is needful where cultivation, though 
carried on by separate families, is on unfenced land 
and on intermingled strips. For each share is at 


least in four plots, for example, one in the hay-field, 
one in the fallow, one in the rye-field, and one on 
the field of oats or buckwheat. In many villages 
where pasture is not superabundant, the Mir has 
also to limit the number of cattle and sheep which 
one family is entitled to turn out to graze, or to 
fix the compensation to be paid if that number is 

Fourthly, to fulfil various judicial and executive 
functions of both civil and criminal law : regulating 
according to custom, successions, partitions, and 
other family arrangements within each household ; 
deciding ordinary disputes; admitting new members 
to the village ; giving old members permission 
to leave and to compound for their obligations ; 
punishing offenders, giving corporal punishment, for 
example, to those who through misconduct fail to 
pay their taxes and increase the burdens of the 
rest ; and taking occasionally the extreme step of 
banishing as a colonist to Siberia an incorrigible 
idler or drunkard. 

Apart from this case, no peasant can be deprived 
by the commune, or by any creditor, of his house,, 
his garden, his share of communal land, and the 
necessary beasts and implements for farming. 

The Volost Courts, that is, the peasant courts of justice 
established after the emancipation, but following the ancient 
local, customary law in their decisions, are distinct perhaps 
more in form than in reality from the village assembly. 

Sixty million peasants, at the least, and a 
rapidly increasing number spreading over a vast 
and increasing area, live under this system, which 


is in startling contrast to the systems of Western 
Europe and America, and which solves so many 
problems of land tenure, local government, poor 
relief, and national insurance that trouble us. Nor 
can it be said that this is done at a sacrifice of 
all improvement in agriculture and of all personal 
liberty. The agriculture is suitable to the country, 
the common rules of cultivation have not hitherto 
hindered improvement, while the powers and the 
character of the village assembly are a fair safeguard 
against the confiscation of real improvements by 
individuals, and also enable the reclamation of 
waste land to be encouraged, new crops to be 
introduced, and great works that require common 
action, like a drainage canal three miles long in a 
village in Yaroslaf, to be carried out at a minimum 
of cost. And the powers of the Mir to forbid a 
peasant permanently leaving the village, or to compel 
his return, and to demand large payments for his 
permanent absence, or for a temporary passport, 
are no doubt, like many other powers, occasionally 
abused, but are habitually a rational check on life. Moreover, official relations in this 
case do not, as in so many other cases, weaken 
habits of energy, self-help, and co-operation, or 
generate a narrow-minded and subservient army of 
officials known as a bureaucracy. For in the Russian 
villages all in authority or under authority arc- 
personally known to each other; tip commune in 
many ways resembles a guild; and it realize, the 

formula that in the West is a mere catchword, 
the anient of the people, for the people, by 


the people. Moreover, the struggles of petty interests 
are controlled by a vast body of customary law, that 
unlike positive, written, and recent law, cannot 
easily be altered according to political convenience. 
Above all, the whole constitution presupposes the 
Christian family, and the unity of religion. The 
Mir, therefore, is not an institution that can be set 
up at will. We may envy the Russian Empire this 
source of strength, and admire its manifold efficacy: 
but though we admire, we cannot imitate. 

Pitfalls, (i) To say that Russian " Communism " is a bar 
to all agricultural improvement; rashly judging the case from 
other cases in totally different times, places, and circum- 
stances, and with a local Government quite unlike that of the 
Russian Mir, cases where, true enough, the change from 
unenclosed fields and commons to enclosures and separate 
farming, was a prerequisite of improvement. 

(2) To look on the Russian Mir as a mere survival, which 
soon must become obsolete, of primitive Communism ; for 
that Communism is dubious ; and the redistribution of 
arable land in Russia appears no earlier than the seven- 
teenth century. 

(3) To imagine that the Governments of the West, 
whether central or local, say the German Imperial Govern- 
ment and the English County Councils, could, like the Mir in 
Russia, interpose to regulate industrial and domestic life, and 
little or no harm come from the interposition : as though 
nine-tenths of the conditions that make the Mir a success, 
would not in the West remain unfulfilled. 

From the foregoing examples of the five chief 
social relations, we may perhaps gather the con- 
clusion, that whereas servile relations are always an 
evil, and feudal relations only good under particular 
circumstances, there is a permanent field for corpor- 
ative, mobile, and official relations ; and that much 
of national welfare depend on these three relations 


being found in their proper departments and proper 

For example, no little of the industrial peace and vigour 
within the vast Empire of China, comprising nearly one-fourth 
of mankind, can be ascribed to a judicious mixture of the 
three relations. We find there plenty of markets, plenty of 
competition, and the opportunity of growing wealthy by 
trade. But then this mobility is tempered by the law, which 
strikes at irresponsible absentees by requiring each man to 
be registered in some one particular district, and which 
makes the only path to office and power to be through 
examinations in which a certain number of candidates only 
can pass from each district. Bad husbandry, also, is a penal 
offence ; and the appropriation of land for sport or pasture 
made impossible by the land-tax which is assessed on the 
proper produce, not on the actual ; while miserable indebted 
cultivators, like those of Western Europe or Hindustan, are 
unknown, because mortgage is illegal, and the creditor must 
take the land himself and be responsible for the taxes. 
Finally, corporate relations in China are frequent and 
manifold : each trade in each city has a guild ; the guild 
halls are among the finest of Chinese buildings; and besides 
regular and permanent associations, there are all sorts of 
temporary associations for industrial purposes ; while, most 
important of all, the prevalence of joint-families causes the 
bulk of the inhabitants to be grouped in corporations, some- 
times comprising thirty or forty persons, but on an average 
about sixteen, and thus associations on a small scale ; but all 
the same most efficient. 

For us, however, the point of most interest 
is not China, but Great Britain and Ireland. Let 
us then look what changes in the mobile, corporative, 
and official relations among us are needed for our 
welfare, and from what false paths we must hold 




For the sake of clearness and convenience the 
principal economic reforms of which Great Britain 
and Ireland stand in need, can be grouped under 
nine heads, and serve as a practical illustration of 
the principles taught in the present and previous 
Books. How far and with what modifications 
other countries stand also in need of these reforms 
can be decided by the economists of those countries. 
Some of them have in great part been carried out 
abroad, notably in many of the States of North 
America. On the other hand, several countries 
groan for deliverance from evils from which we 
ourselves are free. France, for example, requires 
a great change in her laws of succession to property 
and in her observance of the Sunday rest ; Italy, to 
be freed from the burden of taxation ; and other 
countries from other evils, as can be pointed out 
by those who have the double knowledge of 
economic principles and the special circumstances 
of their country. 

First head of reforms. The extension and proper 
enforcement of factory laws. The expression is to 
be taken in the wide sense to mean laws for pre- 


venting any man, woman, or child in any employ- 
ment whatsoever being worked so long as to injure 
health and make a decent life impossible ; laws 
also preventing dangerous and unhealthy methods 
or practices of work, such as unventilated work- 
shops or unfenced machinery ; laws, finally, pre- 
venting certain classes of persons, notably married 
women, girls, lads, and children working at all at 
particular employments, which are injurious to them 
either morally or physically. All this has been 
sufficiently explained in the previous chapter ; here 
we have only to point out modes of amending the 
English factory laws, as follows : (a) Let them be 
extended, with the necessary modifications in each 
case, to the men and women, the lads, girls, and 
children, employed in, on, or about shops, stores, 
warehouses, offices, small workshops, public houses, 
railways, canals, tramways, and omnibus lines, sea- 
going vessels, and some classes of fishing-boats. 
(6) Let them be improved by raising the age for the 
employment of children in mines and in many, if 
not all, factories and workshops ; by making the 
employment of children, lads, and girls, and the 
paying them wages, depend on the consent of their 
parents or guardians, with due precautions against 
as already suggested (supra, pp. i u, 113); 
by treating the law of 1891, forbidding factory work 
for fou; after childbirth, as a first step towards 

gradual elimination of mothers of young children 
from tin- factory, a reform the need <>f which lias 
already 1- forth. (Supra, \>\>. 106, 107.) 1 \ Let 

r enforced, by means oi il increase 


of factory inspectors, perhaps, also, by appointing 
for some industries female inspectors, and by requir- 
ing (according to Mr. Charles Booth's suggestion) 
that every lessor of premises used as a factory or 
workshop, as well as every employer, shall register 
his property or business. 

Second head of reforms. Responsibility of em- 
ployers and owners for the livelihood of their work- 
people and tenants. Already in the sixth chapter 
we have seen that the justification of riches implies 
such responsibility ; and now, unless this responsi- 
bility is placed in fact or by law on particular 
shoulders, it must fall on society in general in the 
shape of national compulsory insurance, or great 
national institutions of poor relief, or other measures 
still more socialistic. For remember the charac- 
teristic of modern socialism is the substitution of 
the collective action of the State for the private 
action of individuals, families, or associations ; and 
where private responsibility is the least, and the 
private bonds that link men together the weakest, 
there the liability is the greatest to find in the State 
the one agent of responsibility, the one bond of 
social union. It would be well then to be wise in 
time and to make the liability to accident, sickness, 
incapacity, and old age not occasions of dissolving 
private bonds, but of strengthening them. Let 
then every Government office, and every joint-stock 
company, and any other kind of association, and 
in time every individual employer and individual 
owner of property (if rated above a certain sum) be 
responsible for the maintenance of all who work for 


them or work on their property, and, within a reason- 
able time, for all whom they have compelled to quit 
their employment or their property. And to prevent 
men incurring responsibilities they cannot fulfil, it 
should be the duty of public authorities to call on 
those conducting new and doubtful undertakings to 
give security that in case of failure there should be 
adequate provision for the work-people. 

No doubt the proposal of a law so different from what for 
long years we have been accustomed to, will be met with a 
thousand objections; to which, perhaps, three answers will 
be sufficient : 

First, that no new responsibility or charge is imposed, 
but only shifted ; and the burden borne no longer by a 
helpless aggregate of ratepayers, but by definite individuals 
or bodies able in great measure to check the causes of 
poverty, and with great interest in checking them. For 
well, indeed, it has been said by one of the most competent 
students of the " sweating system " (Miss Potter), that the 
dreadful evils revealed have as their root the absence of the 
responsible employer. 

Secondly, that we may assume common sense and justice 
in the introduction of this reform. Thus some categories of 
employers, such as Government departments and railway 
companies, would be dealt with sooner and more stringently, 
others later and more laxly ; and all only after due notice 
and ample time to make provisions for trie coming liability. 
And the utmost liberty should be granted in the manner of 
making the legal provision, every sort of arrangement suitable 
for the purpose allowed between masters and workmen, 
owners and tenants, insurers and insured ; and thus the 
intervention of (Government be reduced to little more than 
the enforcement io certain cases of the deposit of caution- 
money according to the estimate of actuaries, and the relief 
by I04 al authorities of those in distress whom the responsible 
mas* ty owners had neglected, and the recovery 

of this relief from tii« <• default* 

irdly, that we may assume common among the 

ernp! and owners to whom thi law would apply; and 

that in consequence they would b ral do two thin 

• importance for national welfare into 

nutual in 111 an< e, and comp< I then woi k-p< 


those on their property to insure themselves, at least in some 
part, against sickness, accident, incapacity and old age. 
Hence a stimulus would be given to the union of masters and 
men in a common guild or corporation with a corporate fund 
for insurance, and a representative government settling all 
questions of wages and work, and in some trades the proper 
number and training of apprentices, and thus doing all that 
is done by actual boards of conciliation, only more securely 
and permanently, and doing much more besides. Moreover, 
there would no longer be any need for the State to act itself 
as an insurance company ; nor again any need for it to track 
out and hinder those dishonest or deluded petty friendly 
societies which have brought such misery on our poor. They 
would be tracked out and hindered much more efficiently by 
every owner and employer, whose pockets would now be 
emptied by their default ; and the demand for efficient 
insurance would assuredly, without the State taking to the 
business, meet an efficient supply. And as cheapness as well 
as security is part of efficient insurance, not only would the 
unsound local clubs and societies disappear, but also the 
expensive forms of insurance like the " Collecting Societies," 
whose three and a half million members lose on an average 
some 40 per cent, of their payments in expenses of manage- 
ment ; whereas those expenses in the great " Affiliated 
Societies " (like the Foresters or Odd Fellows) are only on an 
average some 7 per cent. ; and hence these latter societies, 
now numbering some two million members, and with funds 
of some thirteen million pounds, would probably, were the 
law of responsibility in force, soon double or treble these 
numbers and these funds. 

Finally, the dreadful evil of fluctuations of employ- 
ment, alternations of over-work and of being out of work, 
notably in the building and clothing trades, among many 
seamen and most common labourers, would be reduced to 
a minimum. The rich and powerful would be obviously 
interested in providing permanent employment ; and where 
permanence of a particular employment was impossible, in 
providing a second or third or fourth employment in case 
of interruption of the first. Persons and places needing 
labourers for certain periods only of the year could be 
trusted to have sense enough to organize an interchange of 
labourers, instead of employing a man as they do now for a 
few weeks or months of the year, and then, as far as any 
effort or thought of theirs is concerned, letting him go (as we 
say) to the devil for the remainder. 

Such is this great reform for which there are fortunate 
signs that public opinion is becoming prepared. For in the 


railway, the dockyard, and the merchant shipping service we 
see masters and men feeling their way towards mutual com- 
bination in guilds, and towards the formation of corporative 
funds for insurance ; while the great organ of the richer 
classes in England can openly lament the " casual and 
inhuman relations between employers and employed," and 
lay down as a general rule " that the relation of master 
and sen-ant is good and sound in exact proportion to its 
permanence." (The Times, April 14, 1891.) 

Third head of reforms. Responsibility of em- 
ployers and owners for the decent dwellings of their 
work-people and tenants. This is logically a part of 
the previous head of reforms, or at least a corollary; 
but its special importance in our own country 
requires it to be put in a special place. Having 
done this, it is sufficient to refer back to what 
has already been said in the tenth chapter of the 
First Book. 

Among many ways of fulfilling this obligation one ingenious 

plan deserves mention, the plan of placing the ownership of 

the workmen's dwellings, gardens, and park, not in the 

despotic hands of the employer, nor in the slippery hands 

of the workmen, but in those of a joint-stock company of 

which both employers and employed are shareholders. And 

the shares can only be transferred with the consent of the 

tors. Hence the work-people enjoy fixity of tenure in 

their dwellings, unless their misconduct is such, that the 

Company, where the voice of their fellow -workmen is heard, 

Is them. And while thus secure, they are not tied by 

aership of a particular house, but can shift to one 

larger or smaller according to the needs of their family, and 

can leave altogether without loss. The details of application 

of this plan at Delft in Holland by tin: firm o\ Van Marken 

;i in the Staat .lexikon published by the ' 

cha/t, I. pp. 41 1 — 415. 

Fourth head of reforms. Security for pron sional 

icity. Let no one be allowed without having 

i uitable examination to act as employ* r or 

man in any bu » where the want of technical 


capacity is liable to cause accidents to life and health. 
All engineers, builders, and plumbers would come 
under this law, and the foremen in mines and many 
factories ; while a stimulus would be given to the 
proper organization of apprenticeship and to tech- 
nical education for those for whom it is really 
needful. And in the case of insurance, here also 
private initiative should not be hindered but en- 
couraged by the Government. Hence, whenever 
guilds or corporations required proper tests of 
efficiency from their members, the certificates 
granted by such guilds should be recognized as 
adequate to fulfil the legal obligation. 

Some attention also should be paid to moral 
capacity ; for although honesty can be provided by 
no law and secured by no examination, at least 
those found guilty of fraud or culpable negligence 
can be excluded from many posts, such as those of 
shopkeeper, of employer, or of foreman ; and not be 
allowed after conviction or bankruptcy to start again 
on the same course without any proof or probability 
that under the same circumstances they will not 
again yield to the same temptations. 

If so obviously reasonable a law were in force we should 
not read in the newspapers that the public analyst for the 
parish of St. Luke's, East Finsbury, found 43 per cent, of the 
milk samples he had bought were adulterated, 16 per cent, of 
the mustards, 14 per cent, of the coffees, 11 per cent, of the 
spirits, 11 per cent, of the butters, and 75 per cent, of the 
disinfectants (The Times, Oct. 13, 1891); nor that a certain 
financial agent, having failed in 1874 with liabilities of over 
£80,000 and assets under £6,000, was again adjudged bankrupt 
in 1880, and starting again, took part in a company which 
failed in 1890, and himself failed in 1891 with liabilities of 
£344,989 and assets of less than one-fourth of the liabilities. 


Fifth head of reforms. A humane law of debt. 
Let us follow the example of most of the States of 
America, and by a Homestead Exemption Law 
surround each family as far as possible with an 
inviolable enclosure and a secure means of livelihood; 
extending the present paltry exemption, so that no 
ordinary creditor, including the landlord and perhaps 
even the tax-collector, could seize on the family 
homestead and necessary farm stock, nor on the 
family house and necessary bedding and furniture, 
nor on the necessary materials and implements of 
trade or profession. (See Supra, pp. 153, 154, and 
328 — 330.) Moreover, let the shameful abuse of 
imprisonment for debt, to which the poorer 
classes, but not the middle or upper classes, are 
still liable, be abolished, not in name, as it is 
now, but in reality, and punishment be reserved 
for fraud, and for culpable negligence also if the 
defaulter be a trader. (Supra, pp. 309, 310.) 
Finally, let a reasonable usury law be passed such 
as already explained in the chapter on uncommer- 
cial credit. 

Sixth head of reforms. An immense multiplication 

of small and secure rural holdings. Rural, because 

it is of necessity for national welfare that the great 

bulk of the inhabitants live in the country, not in 

the town. Secure, because half the benefit of a 

family occupying a small holding is lost if it is liable 

to be dispossessed at the good pleasure of Others, or 

e of the folly of one of its members. Small, 

e it would be impossible to provide vast 

multitudes with farms of a large or even inter- 



mediate size, and if provided they could not be 
worked ; whereas the advantage of rural residence, 
and fit occupation for the wife and young children, 
are attained by a small holding of five acres, nay, by 
a miniature holding of half an acre at the cottage 
door ; and not only farm labourers, but every family 
among village tradesmen and artisans, and not a few 
among the dwellers in the towns and workers in the 
factories are capable of turning some such holding 
to profitable account. And this reform, besides 
helping to preserve or restore Christian family life, 
would probably within a few years double the annual 
produce of British and Irish agriculture. 

If there is agreement on the pressing need to stop the 
depopulation of the rural districts in the Three Kingdoms, and 
thus to preserve where it exists and create where it is absent, 
a body of occupiers of small holdings rooted to the soil : the 
method of acting on this agreement ought not to be too much 
for the capacity of our Legislature. Observe that the reforms 
already urged would tend to foster small farms and miniature 
homesteads, notably the humane law of debt, which would 
hinder the selling up or eviction of small occupiers ; and the 
law of responsibility of owners and employers for the decent 
dwellings of their dependents, which would be a stimulus to 
rural or suburban factories, like those of Wiirtemburg, where 
in some cases the majority of the factory hands are sons and 
daughters of the small farmers around, and live at home and 
hand their earnings to the head of the family. This law of 
responsibility would also stimulate the provision of rural 
cottages with large gardens or allotments attached to them, 
the produce of the garden being the solution of the difficulty 
of how to repay the landowner for his outlay on the occupier's 
house. {Supra, p. 154.) In Ireland and in the Highlands of 
Scotland some amendment of their present land laws and the 
introduction of a Homestead Exemption Law, would perhaps 
suffice ; but in England where there is less to preserve and 
more to create, a creative law of some sort (such as the Small 
Holdings Bill at present under consideration) is a great and 
urgent need. 


Perhaps in all three kingdoms, a great check to the depo- 
pulation of the country and a requisite to the success or full 
success of small holdings, and especially of small farms, is the 
creation or preservation of communal or village rights over 
rough pasture, woodlands, wastes, and marshes, and conse- 
quently in many places the acquisition of such lands by the 
authorities of the village, the town, the county, or the kingdom, 
and their replanting or regulating, pro bono publico. In truth, 
to make the country-side pleasant not merely to the few but 
to the many, there is need not simply of village greens and 
recreation-grounds, but of adequate open ground and waste, 
water, or wood, to allow of some field sports — rude perhaps, 
and humble, and infantine, but still sports. For if it comes 
to have to play on the high-roads, as is often the case, there 
is much more entertainment and variety in the gutters of a 
great city. And on grounds of profit for the peasantry as 
well as pleasure, they will find that reeds or heather for 
bedding cattle, timber for repairing buildings or carts, a 
supply of firewood or peat, access to pits for sand, marl, or 
chalk, a cattle-run and watering-places where the beasts can 
get sun or shelter according to the season, and a green for the 
village geese — that these and similar rights of common may 
just make the difference between success and failure, and 
enable them to keep that abundance and variety of live stock, 
those cattle, sheep, asses, goats, swine, and all sorts of poultry, 
as well as bees, and to practise those bye-industries, which 
will give their families occupation both abundant and profit- 
able. And the more the country becomes peopled the less 
the need of nomad gangs for particular occasions. 

lor the purpose of preserving our existing commons, two 
I reforms have been proposed in Mr. Scrutton's excellent 
work on (.'.ominous, and are commendable : that no enclosure 
\)c made without the sanction of the Enclosure Commissioners 
and of Parliament ; and that all illegal enclosures be made 
public nuisances that any one may abate or prosecute. 

Seventh head of reforms. An immediate and 
thorough change in tin- law and administration 
of the drink traffic, the reform taking the lines of 
good drink, homo brewing, high lic< aces, and 
nt ho ,f refre hment, all sufficiently ex- 

plained already. \Snfi\i, \>\>. \ji, 1; 3.) 

Eighth head of reform . A in< tamorphosis <>f the 


poor laws. At present this miserable branch of the 
law, as explained in the last chapter, sets Christi- 
anity and common sense alike at defiance. But 
though, our laws remaining the same, it would be a 
Herculean task to cleanse out this Augean stable, 
it is otherwise if we have already adopted those 
reforms already urged. If, namely, we had in force 
the great law of responsibility of owners and em- 
ployers for the livelihood and decent dwellings of 
their dependents ; if homestead exemption laws 
sheltered wife and children from the vice or weak- 
ness of the head of the house ; if a multitude of 
small holdings gave employment in slack seasons, 
and at every season motives of thrift and industry ; 
if the daily incitation to men and women and 
children to get drunk were withdrawn : destitution 
would be reduced to dimensions that could be 
treated with simplicity and ease. Then the all- 
important distinction could easily be drawn between, 
on the one side, tramps and able-bodied idlers, sots, 
and thieves, and bad women, and on the other side 
the widows and orphans, the blind, the halt, and 
the lame ; and while for the last class the private 
alms of a Christian people would be abundant pro- 
vision, the police of a reasonable Government 
would deal with the first class, and according to cir- 
cumstances transport them to reformatories, homes, 
and notably to rural labour colonies, where there 
would be necessity of labour, an absence of tempta- 
tion, the presence of religious influences, and every 
opportunity of reformation ; and which, moreover 
(always assuming that those previous reforms had 


been carried out), could be so worked as to pay or 
nearly to pay their own expenses. 

Considering how in Holland and Germany the responsi- 
bility of employers and the protection of a homestead law are 
almost as crying needs as in England, and their presence 
almost as much a prerequisite as it is in England of rational 
poor relief, the condition and results of their labour colonies, 
especially the Dutch semi-penal beggar colonies, are not 

If the proposed transformation of the poor laws were 
accomplished we should cease to be burdened with poor- 
rates, and compulsory levies for the support of the poor 
■would be almost or wholly confined to the intervention of 
public authorities for the relief of exceptional distress, such 
as that caused by a great failure of crops, or scarcity of fuel, 
or of the material of some great industry, like cotton in 1861 ; 
or where some technical improvement, while a gain to the 
nation at large, was a grave loss to a particular class of work- 
people. (Supra, p. 139.) 

Ninth head of reforms. Last, but not last in time 
or in importance, comes the restoration of Christian 
training, of Christian homes, schools, and work- 
shops : religion occupying once more the first place, 
and godless schools being reduced to insignificance 
or nothingness. Nor let any one say that this 
recommendation, whether in itself wise or unwise, 
is in any case not a matter of economics. On the 
contrary, it is the very core of economics; as the 
question of how men are to get their daily bread, 
and families and nations are to continue their 
existence, is inseparably bound up [with the moral 
dispositions of the workers, of the parents, and of 
the citizens. This at least, I hope, has been made 
plain to the student in the chapters on the pro- 
ity of man, on family life, on national 
th and decay, on the nature and justification 


of the distinction of rich and poor ; and there is 
no need to repeat the warnings on the sad and 
menacing issue of godless education, on the fabri- 
cation dcs declasses, on the sterility of families, on 
insolent youth followed by miserable old age, on 
civil discord, the warfare of classes, and national 
decay. All I need repeat is the asseveration that 
without the ninth head of reform, without the con- 
tinuance or restoration of the Christian family, 
those other eight heads of reform will partly be 
unattainable and partly be fruitless. 



Let us turn to some of the schemes of economic 
reform that are illusory, but which appear to their 
advocates, if not a panacea for all our woes, at least 
a solution of most of our economic difficulties. Of 
the chief of these untrue solutions we may reckon 
about ten, several of which have already been dealt 

First illusory reform. Malthusianism, namely, the 
plan of removing social evils by reducing the number 
or restraining the growth of the population of a 
country : on which most mischievous illusion enough 
already has been said. (Supra, pp. 129 — 134.) 

Second illusory reform. Individualism, or the 
doctrine of universal competition, or freedom of 
industry, or the system of natural liberty, or what- 
ever other name may be given to the advocacy of 
mobile relations, whether simply, or on the suppo- 
sition of a great extension of education and the 
making universal of secondary technical education : 
on which illusions what has already been said 

on education [supra, pp. 36 — 46)1 and on mobile 
relation* (supra, pp. 440 — 442), is a sufficient com- 



Third illusory reform. Teetotalism, namely, the 
plan of social reform by abolishing the use of 
intoxicating liquors : as though one cause of evil 
were all the causes, and as though intemperance 
were not an effect as well as cause. But this 
illusion has already been dealt with (supra, p. 173), 
as well as the kindred but less plausible plan of 
social regeneration by means of vegetarianism. (Supra, 
p. 149.) Only remember, lest I appear even for one 
moment to be an advocate of the present drink traffic, 
that the reform of that traffic, root and branch, is 
one of the nine great heads of reform ; and let the 
impetuous student not rush blindly into the follow- 
ing mistaken conclusion : 

Pitfall. To think that because the abolition of strong 
drinks or of intemperance is no social panacea, and the 
hopes that it will prove so are illusory, therefore vigorous 
laws against intemperance and its promoters are an illusion. 
For then all laws would be an illusion. 

Fourth illusory reform. Co-operation, namely, the 
plan of abolishing the distinction of masters and 
workmen, and of profits and wages, by making the 
work-people their own employers, receiving their 
income no longer in the shape of wages, but in 
the shape of profits. This proposal deserves to be 
examined with some care. 

Now among the many forms of business one is 
the association of manual workers to conduct the 
business by themselves, and to divide all the profits 
among themselves. This form of business under 
certain circumstances has advantages notably "where 
(1) a branch of industry is of such a nature that it 
can best be carried on by a small group of workmen; 



where (2) the workmen so engaged are substantially 
on a level as regards strength and skill ; where (3) the 
initial expenditure for tools and materials is small ; 
and especially where (4) the goods are to be pro- 
duced mainly or wholly for the local market." 
(Walker, Political Economy, p. 349.) In such cases 
there is little need of the capacities of the entrepre- 
neur, little difficulty in fairly dividing the proceeds 
among the members ; while energetic work and 
careful work is the interest of each associate. 
Where, moreover, there is great uniformity in views 
and habits of life, and the workmen have been 
trained in discipline and industry, their union for 
trade purposes is made still easier. Hence work- 
men's industrial associations have often arisen and 
been of great benefit to their members. For example, 
the arteles of Russia, groups of workmen sometimes 
sixty or more in number under an elected manager 
(Artelchilk), treasurer (Cloutchnik), and two auditors 
or controllers (Starchi), for building, paving, earth- 
works, porterage, and much else, and dividing the 
proceeds of their enterprise with equity and without 
dispute. An example more familiar to us is that of 
the co-operative stores among the working classes 
in the North of England and in Scotland, by which 
happy contrivance the exorbitant profits of retailers, 
I i so lianlly on the poor, have been 

diverted into the pockets of the store members, and 

still better, a great check put to fraud, to adultera- 
tion, to running into debt, and mulua given to 
habits of asso< iation, management, and 1 If-control. 
Thus anion;; numbers by no i. lificant 


these co-operative stores have resulted in much 
gain, both financial and moral. 

Already we have examined and praised this last example 
of " co-operation ; " and seen also that its advantages, though 
great, are of the character of a disinfectant or antiseptic 
pending the removal of our unhealthy laws of debt and of 
retail trade. {Supra, p. 220.) Often this kind of co-operation 
is called consumptive or distributive co-operation, and its success 
contrasted with the insignificance and failures of productive 
co-operation. But as it is best to reckon the bringing to 
market as part of the process of production, it is best to 
avoid making this distinction of productive and consumptive 
co-operation ; and rather to speak of all these associations 
alike as working-men's industrial associations, and to say that 
in the circumstances of the nineteenth century in Great Britain 
(but by no means in Russia, France, or America), they had 
little success in manufacturing or agriculture, but much 
success in retail and even wholesale trade ; and similarly 
that in Germany and Italy they have had much success in 
banking (as seen supra, pp. 330 — 331). 

But because "co-operation" has been a success 
under certain circumstances, in a limited field, for 
special operations, or among a class of workmen 
with special characteristics : to suppose that it can 
be a success everywhere and can solve the antago- 
nism of masters and workmen, is a poor bit of 
reasoning ; and the failure during the last fifty years 
of a multitude of co-operative societies, even when 
subsidized by public funds or private benevolence, 
even when supported by favourable public opinion 
and by enthusiasm among the members — the aban- 
donment also of the principle of co-operation by 
so many societies who have virtually become joint- 
stock companies employing hired labourers like any 
other joint-stock company — the need of assuming, 
if co-operation is to be a panacea, that the functions 
of the entrepreneur are not necessary, that men are 


all equal or else all so amiable that no jealousy can 

exist on matters of pay and promotion, of order and 

discipline — the total failure of the great co-operative 

movement in Germany to stem in that land the 

portentous growth of socialism — all this might teach 

us that the so-called " co-operative faith " is an 

illusion. Truly, if co-operation is to be efficient as 

the great means of social reform, human nature 

must first become such as would render all reform 


How then, it ma)- be asked, are we to account for this 
strange illusion gaining the mastery over so many eminent 
philanthropists and economists of the nineteenth century ? 
The answer is historical. As a movement co-operation began 
as a protest against the individualism and the competition- 
worship of the classical economists in the first half of the 
century, was promoted by the socialist, Robert Owen, and 
then by the Christian Socialists and the French Revolutionists 
of 1848 in opposition to Manchester economics and middle- 
class selfishness. And the doctrine then prevalent of the 
natural goodness and equality of men, gave a great force to 
the belief in the efficacy of such associations. Then, after 
the vain hopes of the Chartists and of the revolutionary 
period were over, there came, as Mr. Cummings has pointed 
out fin the Boston Quarterly Journal of Economics, July, 1890), 
a strange transformation scene. In France and Germany 
socialism was too plainly not dead, and in England the 
-unions were a growing power. The Political Econo- 
to whom trade-unions and socialism were alike an 
lination recognized in co-operation, that had before been 
valuable ally against these enemies. In 
co-operative societies were declared to be "the 
aerons remedy for the error and perils of 
ialism." In Germany, their great promoter, Schulze- 
Delitzsch, wi I champion of the economists against 

►cialist, Lassalle. In England, where trade-unions had 
still mai remain under the ban of public opinion 

Political Econoi ration appeared as an attractive 

lion of labour troubles; tin | the Rochdale 

for woi 1 mi d an 

' lie future ; the IgnOI m" by the OCOft I the 

fund : the entrepreneur masked one great difficulty of 


co-operation ; while the dismal doctrine of the wage-fund 
made a solution doubly acceptable which would raise the 
mass of the population from being wage-receivers to be profit- 
receivers ; and their profound ignorance of history and facts 
made it possible for the economists to believe that co-opera- 
tion was a grand new invention of the nineteenth century. 
So one illusion supported another. And if in the present day 
men of intelligence are still deluded by the co-operative faith 
it is perhaps because they are sore lacking in historical science, 
or because they are sore pressed in the avoiding on one side 
the specious doctrines of socialism, and on the other side the 
unwelcome truths that man is prone to evil from his youth, 
that the state of innocence is lost, and that as long as the 
world lasts the toils and bitter hardships of life will not come 
to an end. 

Fifth illusory reform. Profit-sharing or industrial 
partnership, namely, the plan of solving the social 
question by giving the workmen a share in the 
profits of the business. Now undoubtedly in many 
cases this method of paying workmen is a good 
method, where superintendence is difficult, where 
wages form a large part of the employers' costs, 
where a great difference is made in the results 
according as the labour is careful or careless. Hence 
its application time out of mind in agriculture, the 
rural labourers being given a share of the produce ; 
so notably in many cases of metayer-farming, where 
the farming is a sort of joint venture of landlord and 
tenant. Again, in fishing the method of payment by 
a share of the produce is almost a necessity ; in 
commerce salesmen are often stimulated to activity 
by receiving a percentage on their sales ; and in 
general the higher and confidential workmen, on 
whose zeal the prosperity of a business is largely 
dependent, are often given some direct interest in 
the profits. But in many other cases such method 


of payment is inapplicable or unavailing - . A secure 
and steady income is what the mass of work-people 
require, not one liable to great fluctuations ; the 
dawdling due to time-wages and the roughness due 
to piece-wages can be mitigated by rewards for 
industry, for good work, and for saving of materials, 
just as well as by a bonus on high profits ; while 
no suspicion would be aroused of profits being 
misstated, no claim made for publicity of the 
accounts or for a voice in the management. 

As a mere system then of paying wages, profit- 
sharing is only sometimes the best ; while in pro- 
portion as it becomes more considerable, and more 
deserving the title of industrial partnership, it assumes 
the character of " co-operation," and is liable to the 
drawbacks and limitations already set forth. In 
no case therefore is it any solution of the social 
question, and offers no security for permanent liveli- 
hood, decent homes, and industrial peace. 

The illusion concerning it is in part due to the same causes 
as the illusion on co-operation. Thus an economist so eminent 
as Jevons could be in such darkness on history as to think 
profit-sharing a wonderful invention of his times ; and again, 
profit-sharing schemes have in fact been introduced as a 
weapon against trade-unions. Hut partly also the illusion is 
due to the brilliant success, both morally and financially, of 
certain profit-sharing houses, notably in France, when really 
the success of houses that can get picked workmen is no 
criterion for the employers of the mass of workmen; espe- 
cially when much ot the success of these bo due, not 
baring but to other institutions, notably the 
of their work-people, and the pro* 

viding them with mean-, of education, recreation, and del 'lit 

which has no necessary connection with 

ITt ot th ■ have 

nmended to be made univer aL And in fru t, uch insti- 
tutions minui the profit-sharing have been Introduced with 


no less brilliant results by humane and Christian employers 
in France, Germany, and England. 

A classical example is the factory of M. Harmel, near 
Rheims, where many of the reforms urged in this manual 
have for many years been carried out, and masters and 
workmen united in a beneficent corporation, and made as 
secure as the miserable anti-Christian law of France will 
allow. Details can be found in the small volume by M. Leon 
Harmel entitled Manuel cVunc corporation chretienne, of which 
the first edition was published at Tours in 1877. 

Sixth illusory reform. Universal boards of concilia- 
tion or arbitration. Enough has been said in the 
eighth chapter of this Book to show that such 
institutions, though excellent in their own field, 
nevertheless, like workmen's industrial associations 
and like profit-sharing, are no solution of the social 
question. But in our catalogue of illusions, this is 
the least illusory ; because, as we have seen in 
discussing the second and fourth heads of reform, 
the growth of guilds comprising masters and men 
would universalize what is now done by boards of 
conciliation or arbitration, namely, the settlement 
of wages and other conditions of work. The mistake 
lies in thinking that such settlements can be made 
general as long as masters and men are arranged in 
separate and often hostile associations. 

Seventh illusory reform. Socialism, the quintessence 
of which is the double proposition, that inequality of 
conditions — the distinction of rich and poor, masters 
and servants — is the principal cause of misery and 
crime, and secondly that the maximum of temporal 
welfare will be gained by the State becoming the 
owner of all the means of production, reducing all 
industries to branches of the public services, and 


all workers to be public servants paid by the 

This is the real and dangerous illusion of our 
own time, and the word socialism is in most common 
use to express it, though often the term collectivism 
is used to indicate the collective method of pro- 
duction under this system, or State socialism to 
indicate that the State is to be the universal 
organizer and provider. It is to be carefully dis- 
tinguished from communism, which removes the 
private ownership even of objects of enjoyment, and 
is thus obviously fatal to Christian homes, and in 
fact closely connected with community of wives ; 
whereas socialism admits a certain amount of private 
ownership, private inheritance, and private donations, 
namely, as far as relating to houses, furniture, adorn- 
ments, books, pleasure-grounds, and other objects 
of enjoyment ; and thus is not obviously and imme- 
diately hostile to family life and religion. Again, 
socialism is to be distinguished from anarchism, 
which aims at removing all government and doing 
without legal property or legal marriage ; so that 
men living in free co-operative groups shall be 
secure fit is fondly hoped) of social equality and 
of true liberty and fraternity. 

metioM 1, the word socialism is used indiscrimi- 

nately for all attempts to remove the distinction of masters 
and workmen, whether the State intervene 01 not ; and would 
include alike collectivists, anarchists, and communists, 
and ion. Sometimi q, but 

• unfortunately, the word is used of all effort of the Legis- 
lature to improve the condition of the poor< 1 1 la e 1, and thus 
pplied indiscriminately to two wholly different kind "1 
lation : the humane and rational legislation thai i< 

tions inequalities of wealth and power, but 


then seeks to prevent all oppressions, extortions, usuries, and 
criminal neglect of duty : and the legislation on the other 
hand that seeks greatly to lessen or wholly to remove 
inequality of wealth and power, and to weaken or cut asunder 
the bonds between masters and servants. According to this 
unfortunate use of the term, we cannot tell whether the 
phrase Christian socialist is a mere pleonasm or a contra- 
diction in terms. 

Pitfall. To say that " the Gospels are pervaded with the 
spirit of socialism and communism (which is merely the 
extreme of socialism) as the predominant spirit," and that "all 
throughout the ages of the Church's grandeur and power, we 
find her Saints speaking communism, the Church not con- 
demning." (Professor Graham.) For either by the terms 
socialism and communism this means the Christian doctrine 
of the blessings and dignity of poverty, the dangers and grave 
responsibilities of wealth, the duties of fair dealing, of resti- 
tution, and of almsgiving: and then to use such terms of 
such doctrines is gratuitously to mislead ; or else this means 
that the " Gospels " and the " Saints " taught the fitness of 
universal and compulsory communism instead of voluntary 
communism among a chosen few ; or taught that fortunes 
should be equalized by the compulsory action of the law, 
instead of merely by the voluntary action of almsgiving, and 
that such a levelling would be, so to speak, checkmate to 
original sin ; and then the proposition implies so complete a 
misapprehension of Christian language and history that there 
is no need to refute it. 

In this manual the word socialism is used simply 
in the sense explained previously, and socialistic is 
the adjective to be applied to all measures leading 
to the establishment of socialism, especially by being 
based on principles that logically lead to it. 

No confutation of socialism is here necessary; 
for this has already been given in the chapter con- 
taining the apologia for the rich, where on the 
grounds of natural law and revealed religion we 
saw that inequality was needful for civilization and 
conducive to material and moral well-being; and 
we can refer on both communism and socialism to 


Father Joseph Rickaby's Moral Philosophy, 2nd Edit- 
pp. 278 — 297. Here let us only emphasize two points, 
First, that we denounce socialism as essentially irre- 
ligious and therefore essentially untenable. In vain, 
socialists may repudiate the open atheism of many 
of their writers, and explain it as an excusable 
reaction against that hypocritical piety which on its 
own account will take nothing short of a cheque on 
a banker, but thinks that the lower orders should be 
quite content with a cheque on Heaven. In vain, 
also may they protest that they do not interfere 
with the privacy and sanctity of family life or with, 
complete religious liberty, and that Mr. Bellamy's 
scheme even provides for having religion turned on 
to houses through tubes, like gas or water. For in 
truth the foundation of their doctrine is the glorifi- 
cation of wealth as the one thing necessary, and its. 
equal distribution as the one great prerequisite for 
the abolition of vice and misery. Hence by implica- 
tion they deny the Christian doctrines of original 
sin, of a fixed human nature, of the providential 
government of the world, of the natural inequalities; 
of man, of the religious character of marriage ; and' 
their scheme of all production being in the hands 
of the State, when carried out would result, men 
being as they are, in an inevitable persecution of 
the Christian religion, in a gigantic political tyranny 
only tempered by jobbery and corruption, and in ;i 
tremendous blow being struck at Christian family 
life-, the providence of parents being SUfX 1 eded by 
t of the State; family property beim oi little 
efficacy if the means of production are excluded 


from it. And thus the ultimate effects of socialism 
are not far removed from the immediate effects of 
communism : the destruction of our altars, of our 
fatherland, of our homes. 

But then there is the second point to be empha- 
sized, that there are many people who cannot use 
these arguments against socialism, people who do 
not believe in a natural law, or care about the 
Christian family, or admit the Christian view of 
the nature of man. No doubt they have other 
arguments against the socialists and plenty of bad 
names for them. But both arguments and names 
can be paid back to them by their opponents in 
coin about as good as their own ; at any rate the 
arguinentum ad hominem that their own un-Christian 
schemes of society are as Utopian and contradictory 
as those of socialism, is an unanswerable tu quoque. 
As therefore they will not admit the religious 
solution of social questions, or understand that this 
question is above all things a religious question, 
there is but one argument left them with which to 
confound their enemies, and a very old argument, 
the gallows. Only, unfortunately, more than one 
side can use that old argument. 

Eighth illusory reform. Nationalization of the land, 
in the sense of the State taking all difference due to 
the law of diminishing returns from land. As this 
species of differences has often been called rent — 
how unfortunately so called we have already ex- 
plained at length {supra, pp. 335 — 338) — this scheme 
of nationalization is often called the appropriation of 
rent by taxation. And as this species of differences 


Las often been taken to be the only species — how 
wrongly so taken is clear from our chapter on 
differences — this scheme is often called the intercep- 
tion by the State of the unearned increment. It was 
recommended in the eighteenth century by the 
Physiocrats ; Mr. Henry George in our own days 
rias been its great apostle ; and a few years ago it 
was the most popular of economic panaceas, but now 
scarce needs explanation or refutation, being less 
plausible and less popular than socialism. Like 
the socialists, Mr. George assumes vice and misery 
to be due to inequality of wealth, but attacks only 
one class of rich people, not all, and would con- 
fiscate not every kind of difference, but only one. 
Again, he assumes like the socialists a wonderful 
piety and moderation among those who would 
have the handling of the goods taken from the 
rich : but he has to extend his piety and modera- 
tion to the delicate relations of buyers and sellers, 
of masters and workmen ; and thus he combines 
the delusions of those who worship competition 
and of those who execrate it. Finally, his pro- 
| al bids us do what is impossible. For we 
have seen that in all old countries, owing to long 
continued cultivation and use of land and to the 
frequency of the realization of differences (supra, 
PP« 2 ; }• 235), it is pra< tically impossible to ascertain 
amount of the differen rent, as he calls it), 

or, if tin- amount could h rtained, to ascertain 

1 tting it. I [ence this scheme of social 
a i 1. t taking nobody knows how 

ich from nobody knows whom. 


The spread of Mr. George's view can be accounted for on 
two chief grounds: first, the common teaching of the Political 
Economists from Ricardo onwards concerning the " rent of 
land " as a separate category in economics ascertainable in 
amount and ever tending to increase ; and by this defective 
analysis of distribution, as well as by using the popular term 
rent in a highly abstract sense, making people believe that 
" the landlords " were the vampires and parasites of society; 
secondly, the abuses of ownership by the speculative land- 
owners of suburban districts in the United States, notably 
the withholding land needed for the growth or improvement 
of towns in order to force up the price. 

To be distinguished from Mr. George's revolutionary 
scheme is the milder proposal of Mill and others to appro- 
priate all future differences of the species in question, or as 
they put it, all " future rent of land," or a great part of it, to 
the use of the State. But two of the objections to the greater 
proposal apply also to the lesser ; the unfairness of attacking 
one kind of " unearned increment " and leaving others scot 
free ; and the extreme difficulty of ascertaining in many cases 
how much of the rent was due to improvements and to be 
exempted, and how much not. In practice, either the tax 
would be insignificant or improvements would be discouraged. 
Then also, as Professor Walker points out, in many cases 
land having already reached its maximum value, there would 
be no place for the scheme, no increment to intercept. And if 
owners were not to profit by an unmerited increase of value,. 
then in common fairness they ought not to lose by an 
unmerited decrease ; and the State would have to com- 
pensate the owners in deserted mining districts, decaying 
towns, depopulated rural districts. Remember, also, with 
men as they are, "the official jobbery, trickery, and corrup- 
tion which would be involved in the management by the 
State of all the landed property in the country, either in an 
attempt to administer it productively, or in the occasional 
re-valuation and re-leasing of it in parcels to suit the 
occasions of individuals." (Political Economy, p. 417.) 

Ninth illusory reform. An eight hours law, that is 
to say, the enactment by law that eight hours a day 
or 48 hours a week shall be the maximum amount 
of work for adults in all factories, mines, workshops, 
and in every business conducted for profit. Such or 
similar proposals are quite different, as already 


explained, from the limitation of hours of work by 
factory laws on the ground of preventing such over- 
work as is injurious to health, or is incompatible with 
the workman leading a decent life according to his 
station. Thus in several if not many employments, 
under certain if not frequent circumstances, eight 
hours a day are hours enough of work, notably if at 
high pressure or in darkness, damp, or great heat ; 
and thus in a particular case a Christian Govern- 
ment may fix eight hours as a maximum limit of 
work in a particular employment : and rightly, as 
fulfilling the office of the State to protect the 
domestic life of all its members. But in doing this 
it is acting on quite a different principle from that 
of a general eight hours law. For such a law is 
based on the principle that it is the business of the 
State to equalize wealth, station, and leisure, and 
to transfer advantages from the rich to the poor. 
Against such a law we can urge the following 
objections : 

First, it is an illogical half-measure. Why stop 
at eight hours, and not rather adopt the plan of 
making labour-service, like conscription, universal, 
and thereby reduce the number of daily hours to 

'>r six, and allow perpetual leisure in later life? 

[ndeed the demand for an eight hours law is some- 

lly demanded as a mere instalment. 

. 1800, the motto adorning the head-quarters of 
Socialist Labour Party in New York v. follows: 

lay is the p in the Labour m 

tmmonvt ealtfa is its final < nd.* 1 

Secondly, uniformity tabli bed where emi- 

nently thei i for diversity, according to the 


industry, the methods of production, the locality,, 
climate, and habits of life, all of which are of weight 
in settling what are reasonable and healthful hours 
of labour in each case, and for estimating which 
nothing could be better than the joint deliberation 
of masters and men of the particular industry, 
united in those guilds or joint corporations which 
will be the natural product of true social reform. 

It may indeed be said that eight hours is not the fixed 
duration, but only the maximum limit of labour, and would 
only be reached in the case of the lighter and easier 
trades, while the hours would be much fewer in the heavier 
trades. But there would have to be fresh laws to enforce 
this happy set off of intensity against duration of labour,, 
which would not come about of itself any more than it does 
now, and indeed would require the socialistic commonwealth 
to bring it about ; and then the eight hours law would be 

Thirdly, in a great many trades either a diminu- 
tion of wages or a diminution of employment would 
be an inevitable result. No doubt in some cases 
the labour of eight hours is so efficient and 
energetic because of its shortness, that to lengthen 
the hours would give no greater produce. But 
in most cases a working day of nine, ten, or 
eleven hours, gives greater returns without any 
ultimate injury to the labour power of the workmen. 
Hence, assuming the present relations between 
masters and men, and the absence of any law 
of responsibility, the enforcement of a general 
eight hours working-day would gravely lessen the 
sources of revenue both of masters and men ; for it 
is incredible that the whole loss would be on one 
side only and not rather distributed in the shape of 


many works closed, many profits shrunk up, many 
wages cut down, many workmen without employ- 

No doubt in a certain number of industries where very 
costly machinery is used, a double shift of eight hours each 
could solve the difficult}- of lessened production, and enable 
the master to pay a higher rate of wages per hour or per 
piece, and thus enable the workmen to earn in the shorter 
time the same amount of wages ; for the master would save in 
his general expenses, notably by his machinery being kept 
in motion for longer hours. As a fact even treble shifts are 
common in the mines of Northumberland and Durham ; and 
Professor Marshall has great hopes from double shifts, and 
suggests the hours 5 a.m. to 11 a.m. and 1.30 p.m. to 3.30 p.m. 
for the first set of work-people; and 11. 15 a.m. to 1.15 p.m. 
and 3.45 p.m. to 9.45 p.m. for the second; and the two sets 
to change places periodically. (Principles, p. 732.) But in 
cases where such alternations are possible, where this broken 
day is not too repugnant to the workmen, where the divided 
responsibility for machinery can be got over, where the work 
of the officers can also be divided, where boys, girls, or young 
women have not to be kept out late in the evening as 
necessary co-operators with men's work : shifts can be 
arranged by the mutual interest of masters and men bound 
together in guilds ; and a stimulus to the formation of such 
guilds (as proposed in the previous chapter) is what is needed, 
not an eight hours law. 

If Australia is brought forward as an example of the 
benefit and energy of an eight hours working-day, we can 
answer that the facts are not clear, and arc certainly incon- 
clusive, being drawn from an abnormal population without 
the usual proportion of sick, old, and incapable (so many 
being left in Great Britain and Ireland), and thus of excep- 
tional vigour; and. m . having received in loans of 
thing like an . of ten pounds a 
y family. When that vigour and those loans are 

exhausted, then it will be time to examine with profit the 
working of an eight hours working-day in that society; and 
more perhaps to the point at 1 oi the 

• hour Laws in France and America, 
where their in tnad< them systematically 

li d. 

Fourthly, the propo i '1 eighl hours law is a mere 
mechanical remedy, offers do bond of union beta 


masters and men, no security that the men will be 
contented with {heir lot or will turn to good account 
the long hours of leisure ; and provides no means 
of raising starvation wages or of giving work to the 
unemployed. It may be a capital strategic measure 
in the socialistic campaign : but if not socialistic, 
then it is illusory. 

To prevent however, as far as I can prevent, misunder- 
standing, let me repeat, and repeat again, that in certain 
cases eight hours a day is a fit maximum for adult labour, and 
the law should not suffer it to be exceeded. And in many 
other cases where, if factory work was to be a man's whole 
.employment, nine or ten hours would be suitable, we may 
hope for the time when in fact he will only work eight or 
seven, or where shifts can be adopted, only six or even five 
hours, and then pass out of the shop or factory to work for 
some hours on his small arable or dairy farm, or fruit or 
vegetable garden, and join his wife and children in these or 
some other small and domestic industry, carried on in the 
security of a rural or semi-rural home from which no creditor 
can drive them. But the way to reach this Arabia felix of 
industry is by a combination of legislative and moral reforms 
very different from the delusive simplicity of an eight hours 

Tenth illusory reform. Compulsory national insur- 
ance. This is the calamitous distortion of a very 
useful reform. For it will be remembered that 
among the obligations of owners and employers to 
be enforced at law, was that of providing against 
the sickness, accidents, incapacity and old age of 
those at work on their property or in their employ- 
ment. The enforcement of this obligation was as 
we saw, one of the surest legislative means of 
promoting sound insurance, not to speak of the 
union between rich and poor and the permanence 
of engagements. But insurance takes quite another 


character when the State interposes, no longer to 
enforce the duties as well as the rights of ownership, 
but to undertake those duties itself, and to provide 
a considerable part of the premiums for insurance. 
Such a course is truly socialistic ; for, as we have 
seen, the justification of riches and power in private 
hands lies in the fulfilment of the duties of owner- 
ship ; and if the State take on itself the most 
onerous of these duties, it seems but natural that it 
should take the property as well. No doubt com- 
pulsory insurance laws like those passed in Germany 
in 18S9, and under consideration in other countries, 
are meant as a barrier against socialism ; but in 
reality open the door to it. For they relieve par- 
ticular persons of the care of particular servants, 
work-people, tenants, and relatives, and put in the 
place of this natural and salutary obligation the 
general obligation of every one to pay taxes to 
the Government, local or central, in order that the 
Government may become the general provider for 
the nation ; and thus those bonds of private life 
are loosened that are among the best safeguards 
against socialism. 

The sad fact that in England, though the richest nation 
of Europe, the dark shadow of an old age of "pauperism" 
I l over nearly three-quarters of the inhabitants (at I 

one in three of those over 65 years old in England and Wales 

is ;it law a "pauper"), lias driven many philanthropists to 

mpnlsory national insiiraix 1 . I he right way to 

make an end of such ** pauperism " has, I hope, been made 
quite clear in tl, >us < bapter; but it is no wonder that 

:i this way should he OU the look out 

mother. Canon Blackley's Bcheme oi insurance, com- 
pellii I from all lads and girls from [7 to 21, 

and providing for then sickne 1 or old age out oi the pro* 1 
time the chief suggestion of reform, but 


found not to provide adequate benefits nor adequate funds, 
and to be so harsh in the means of raising even what was 
inadequate, as to be impracticable. At present the drift of 
public opinion is towards some imitation of the German 
laws of insurance. A word on this legislation is therefore 
necessary, all the more as some parts of it are of a very 
different character from the others. 

By laws antecedent to 1889 (chiefly those of 1883 and 1884) 
compulsory insurance against accidents and sickness is applied 
as follows. A great line is drawn at the end of thirteen 
weeks. Now both for sickness and for disablement through 
accident not exceeding that period, the workmen (and the 
Act applies to twelve million or more of them) are bound to 
insure themselves in some specified sick fund, or become ipso 
facto insured by working. They pay in general two-thirds of 
the premium, and their employer one-third ; the total being 
a percentage, in general i^to 2 per cent., of the average daily 
wages in the locality and in the industry. If still sick after 
thirteen weeks they become a charge on the local poor relief; 
but quite otherwise if they are still disabled through an 
industrial accident. For then the obligation of insuring 
them rests wholly on the employers, except only in the case 
when a workman wilfully injures himself. And in order for 
the employers to fulfil their obligations they are organized 
into professional groups or trade associations (Berufsgenossen- 
schaften), not a separate association for each trade, but several 
trades being grouped together where the risk of accident is 
about the same. And by the mutual liability of the members 
of each of these associations, the insuring employers are 
themselves insured, and the million pounds sterling or more 
annually required is so well distributed as not to weigh down 
any particular employer. 

So far, we may say, so good. Particular points may be 
open to criticism, or only suitable to the particular circum- 
stances of a military bureaucratic State. We should want 
in England much less official control of the manner of insur- 
ance and of the formation and working of associations ; and 
we should want to make ground-landlords and mortgagees 
bear on their broad backs a good deal of the weight which 
the German law concentrates on the employers or extends to 
the workmen. Still, on the whole, this legislation is in agree- 
ment with some of the reforms recommended in the previous 
chapter. But of a very different character is the law of the 
year 1889 establishing compulsory insurance against incapacity 
{ and old age. 

By this law, pensions are provided for those permanently 
incapacitated from work or who reach 71 years of age; the 


amount of the pension varies with the four classes of wage- 
incomes distinguished by the law, and with the sum previously- 
contributed by the recipient ; the fund for providing it is 
raised by a weekly contribution from all workmen over 16 
who are in work, the contribution varying from about a penny- 
farthing to threepence three farthings a week, paid half by 
the employer, half by the workmen. But the fund is also 
subsidized by the Imperial Government, which pays annually 
some 19 shillings towards every annuity. Now this subsidy 
(Reichszitschuss) and the method of insurance gives to the 
whole scheme a socialistic character. The insurance is 
under the management of the State, provincial Governments, 
it is true, but still Governments ; and the authorities have to 
deal with an elaborate system, on which manuals have already 
been written, of payments and receipts, of regulations and 
precautions, of granting and refusing claims, with affairs so 
multiform and multitudinous that the number and functions 
of the official class must be greatly increased and a stimulus 
given to official intervention. On the other hand, no stimulus 
is given towards the formation of private associations of 
masters and workmen, but rather a discouragement ; and a 
discouragement given to the care of old workpeople and of 
relatives. Nor is the smallest check put to the great evil of 
casual employment and want of employment (a failing equally 
conspicuous in Canon Blackley's scheme) ; and once a man 
is fallen out of work and into debt, he will by necessity have 
to interrupt the weekly payment of the premiums, and suffer 
in later life a diminution of his pension as the penalty for this 
interruption, which was not his fault, but his misfortune. 
Further, the pension to be received, often little over two 
shillings and rarely over six shillings a week, is quite 
inadequate even for the circumstances of Germany; the 
actuarial calculations of the promoters of the law were almost 
ludicrous in their optimism ; the need of greatly increasing 
lute and proportionate contribution of the Imperial 
1 eminent can be securely prophesied, and an immense 

nditure on these private duties out of public t.: 
Probably also the Government institutions for carrying out 

this last and d: law, will swallow up the institutions 

of the earlier laws for meeting accidents and sickness; and 

the State will become the one insurer of the work people, 

which 1 ;> on th<- road towards tin- State becoming 

. and being the one owner of all tin- m< an 1 
a. Hence th I Gei man law of 1889 is ao\ 

iir imitation, but for our ware 


Book IV. 



The word finance or the science of finance is 
often used to express the science of the revenue 
and expenditure of all kinds of Governments. 
Although more properly a branch of political 
science, some portions of finance, notably the 
theories of taxation and public debts, have been 
generally included in works on economic science ; 
and rightly so, because of the great effect that 
taxation and loans have on the manner and facility 
with which each family gets its living. From this 
the economic point of view let us then briefly 
examine the general principles of finance as they 
follow from the sound doctrine of the distribution 
and the use of property, and from the sound 
doctrine of the nature and functions of the State. 
We shall then have a criterion by which to form 


our judgment on any particular tax or expenditure, 
and shall not lose our way amid the practical 
systems, multitudinous and ever varying, of ancient 
and modern finance. 

Students will find in modern economic writers a distressing 
obscurity and divergence of opinion on finance. But this is 
a natural consequence of obscurity and divergence of opinion 
on the nature, the functions, and the consequences of private 
ownership on the one hand, and of the State on the other; 
and until these economic and political premises are settled, 
the financial conclusions cannot be settled. Obscurity, more- 
over, is better than the delusive light of the epoch of Ricardo, 
when by the political theory of the police-constable State 
{VEtdt gendarme) the office of Government was reduced to a 
minimum; and by the economic theory of universal com- 
petition and perfect mobility within each country, with 
normal rates of wages and profits, an imaginary theory of 
taxes and of who ultimately paid them (their incidence) was 
constructed with great pains but little profit. 

The economic premises of the theory of taxa- 
tion have received, I hope, sufficient explanation in 
the previous Book, and a sufficient account has been 
given of private ownership and inequalities of fortune. 
What is yet wanting to us is a summary of the 
nature and functions of the State ; for it is idle 
to argue about taxation till we are agreed not only 
on the economic but also on the political premises 
of the argument. Borrowing then from politics, 1 
let us say that the need of the State or the Civil 
Power, with its array of soldiers, constables, and 
tax-gatherers, rests on three grounds : first, the 
natural sociability of men, or their desire and their 
need of living together ; secondly, their endowment 
by their Creator with various rights ; thirdly, their 

1 Some of what follows is taken from what the author has 
written in the Dublin Review for April, 1888. 


moral and intellectual imperfections. If any of 
these grounds were absent, the State would not be 
necessary : not necessary if men were inclined and 
destined to live in isolated families ; not necessary 
if man, like the beasts, had no rights, namely, no 
claims upon others of such a cogency that com- 
pulsion may rightly be used in their defence ; not 
necessary if the mass of men were so wise and so 
well disposed that every right was both clear and 
secure. But with the world as it is the State is 
necessary ; namely, a society comprising a multitude 
of men, independent of any other society (in the 
temporal order), and having as its aim, not some 
particular good (like private societies), but the 
temporal felicity of all its members, by making 
peace and order, wisdom and justice prevail. 

Man indeed bein^ destined for a supernatural end, it 
follows that the earthly city must have as its ultimate end 
the attainment of the heavenly city, and temporal peace be 
but a means to reach the eternal ; but that is the ultimate, 
not the immediate end. 

Now if the society called the State is to fulfil 
its end, there must be a supreme authority within 
it. The authority may be that of one, of a few, 
or of many persons, and may arise and grow in 
various ways ; but these are accidents : the essence 
of the situation is that when lawfully established 
this authority has the right to the obedience of all 
the other members of the State. They are bound 
to obey, not always in the same manner, but for 
the on that a son obeys his father. In 

ise the natural law bids obedience; for the 


family or domestic society, and the State or civil 
society, are both necessary in our present condition 
on earth; hence the subordination required for the 
working of these societies is commanded by God, 
who is the author of nature, and whose law, so far 
as made known to us by the light of nature, is called 
the natural law. It follows that in every State 
the lawful authority, called the Government or Civil 
Power, has like parental authority, all its rights 
from God. Indeed, if God is not acknowledged, 
natural law is a mere empty phrase, and authority 
when analyzed, appears mere organized force. 

From what has been said, the functions of Govern- 
ment can be determined with some accuracy. They 
are mainly to protect the rights of all by making 
clear what they are and then enforcing respect for 
them. Every one in ordinary circumstances has 
the right to life, to health, to moral integrity, to 
a certain measure of moral and intellectual training, 
to a fair name, to the power of making and receiving 
promises that bind, and of joining in honest asso- 
ciations. And every family has the right to that 
measure of independence which is needful for proper 
family life, and the right to attain to the ownership 
or at least the exclusive use of a certain amount of 
property. How these general rights are to be made 
more precise, and how they are to be enforced, are 
problems that require to be solved in different ways 
according to the great variety and changes of 
historical circumstances; and hence the great differ- 
ences in the laws simultaneously in force in England 
and Bengal, or successively in England under the 


first and the fourth William, are no sign that one 
or other of these sets of laws must be wrong, but 
much rather a presumption that both are right. 

But besides these original and universal rights, 
a multitude of others spring up within every State 
in course of time, rights to hold particular goods 
to the exclusion of others, rights to claim from 
others obedience, or honours, or services, or pay- 
ments. The very State itself is an historical 
growth ; it may be very simple, or again very 
complex, embracing various nations or races, or 
local communities, or families, all with rights of 
their own. Thus in the German Empire, in the 
United States, and still more in the British Empire, 
the Civil Power is divided in various ways among 
a number of persons and of local bodies that it 
would take long to enumerate. Now all these 
historical and particular rights of private or public 
persons are to be respected ; for they are either 
the natural consequence of the exercise of original 
rights, or though originally a usurpation, have 
become justified by long use; for long use or 
prescription not only in economics, as we have 
seen (supra, pp. 391, 392), but also in politics, must 
be admitted as a just title by a moral necessity to 
escape endless disorder. Only remember well that 
no historical or particular right can take away the 
original and universal rights of every individual 
and of every family. Hence there is no place for 
arbitrary power, whether in public or private life; 
is any violation of the natural law to be 

tolerated on the ground that this law ha I 1" 1 n 


at nought for a hundred years or by a hundred 

The main and primary function of Government, 
the protection of rights, has perhaps now been 
sufficiently explained. But as the end of the State 
is temporal felicity, the Government has other 
functions. Some of these, indeed, by a certain 
stretching of language, can be included under the 
function of protecting the right of the subjects to 
life and health, for example, preventive or remedial 
measures against famine, flood, fire, or pestilence. 
But other functions cannot, by any reasonable use 
of language, be called the protection of any one's 
rights, namely, the promotion of literature, science, 
art, industry, and commerce, by such means as 
scientific museums, libraries, observatories, collec- 
tions of works of art, costly experiments in agricul- 
ture and mining, establishments for improving the 
breed of domestic animals, roads, bridges, railways, 
postal service, and home or transmarine coloniza- 
tion. In such cases the Civil Power acts, not as the 
protector of rights, but as the promoter of general 
welfare. Nor need we be afraid that by admitting 
such functions we open the door to unrestrained 
intervention. For on all sides there is the restraint 
of innumerable private rights, all of which, even 
those of the feeblest orphan or poorest widow, the 
Government is bound to respect by the very law 
which justifies its own existence. Sometimes indeed 
some public good is so great and so evident, and 
private rights in the way of it are so slight, so 
obscure, or so easily compensated, that the Govern- 


ment is justified in setting them aside. But such 
exceptions prove the rule : the Government will 
have violated no rights, for the rights in their old 
form will have ceased because of their repugnance 
to the public good ; and assuredly Government 
intervention thus hedged about has nothing in it 
unrestrained or arbitrary. Hence, although it is 
convenient to distinguish the protection of rights 
as the primary function of Government, and the 
promotion of public welfare as the secondary function, 
it is not at all necessary to be anxious about 
drawing a precise line between them, to decide for 
example whether the prevention of our streams 
being turned into sewers, and our hill-sides into 
treeless wastes, be a primary or secondary function 
of Government : but very necessary to be anxious 
that we be secure of unpolluted streams and 
abundant woods. 

For our present purposes there is no occasion 
to enter on further political discussions, how, for 
example, the sovereign power should be constituted ; 
what is a lawful Government ; how far inequalities 
of power can be justified. Rather, assuming a lawful 
Government, let us notice the four following points: 

First, no Government can protect all rights 
completely and fully ; and hence in all societies 
private persons are put to a greater or less expense 
ecuring by their own private exertions both 
peace and justice. The locksmith's bill, the auditor's 
fee, the solicitor's I b ahead)' observed 

{supra, p. 175), are of the same chara< ter as taxes 
to j ilors, judges and policemen. 


That the defence of rights should be thus left to private 
persons, is by no means an evil if kept in due limits. What 
these limits are, is a political question, and the answer will 
vary much with times and circumstances. The point here 
is the character of the expense. In the mines of Dakota the 
pay of " fighting men " is a regular and considerable item in 
the outgoings. In Great Britain the obscurity of the law 
and the complications of ownership require every family of 
distinction to have a family solicitor. Both cases are alike 
in being private expense on the primary functions of Govern- 
ment. Sometimes private expenditure meant to be wholly 
or chiefly for recreation is of such a kind that it gives con- 
siderable help to the work of Government, for example, the 
sport of archery in mediasval England, and yachting and 
rifle-shooting in our own day ; and much cost is saved by 
killing in this way two birds with one stone. 

Secondly, and the converse of the first point, 
many payments to public authorities are not pay- 
ments for the functions of Government, or not 
wholly so. This can happen in two ways. Govern- 
ments may step into the place of owners, employers, 
and parents, and in socialistic fashion act as provider 
and father. This is expensive ; and the rates and 
taxes levied to meet the expense are not for defray- 
ing the functions of Government, either primary 
or secondary, but for something else. A great part 
of the English poor-rate and school-board rate is 
of this character. The other way is where Govern- 
ment undertakes some industrial function, like the 
supply of water, gas, electricity, sewage works, 
telegraphs, railways, and postage. Whether such 
action is desirable we will consider later. Here the 
point is that such payments are not for Government, 
but for something else. 

Complication. If the central Government work, for example, 
the telegraphs, and the municipality work the town water- 
supply, and both make a large surplus annually which is 


devoted to the general purposes of, respectively, national and 
municipal Government, then, when you pay your water-rate, or 
send a telegram, you are really paying not wholly for water or 
telegraphs, but partly for Government. If, on the other hand, 
in both cases the authorities carry on the business at a 
considerable loss, then, when you are paying other rates 
and taxes, you are not paying wholly for Government, but 
partly for the enjoyment (by yourself or by others) of water 
and telegrams, made artificially cheap by the Government 

From the two points we have been considering, 
it is clear that when we are reckoning what a 
Government costs the country, we ought to look 
closely both to what is done by public authorities, 
and to what is not done. 

Thirdly, the cost of Government can be met in 
three principal ways, by compulsory service, by 
compulsory payments, and by the rents or profits 
of Government property. The first is almost 
obsolete in the British Isles and the United States 
(our service on juries is a remnant of it), but con- 
spicuous in Continental Europe in the shape of 
military conscription, and in the Dutch Indies in 
the shape of hcerendicnst on useful public works. 
The second is the method characteristic of England 
for two hundred years past. The third affords in 
some countries (like Prussia) a large part of the 
Government revenue, but is comparatively unim- 
portant among ourselves. 

01 that compulsory pa; not necessarily in 

money, but may be in kind, which in man) circumstances 

and most humane m< receiving them. 

mixture of a >mpi ; • m< qI ■ and 

com] imple, the 1 m oi quai i« 1 ing 



There are two other important means of defray- 
ing Government expenses, only from their nature 
they are temporary expedients : one is the sale of 
Government property, and the other, the incurring 
of a public debt ; and they imply either a diminished 
income or a greater expenditure in the future. 

Fourthly, whereas the particular methods of 
meeting the costs of Government may vary much, 
and rightly vary, according to times and circum- 
stances, there is a perpetual obligation on Govern- 
ments in all times and circumstances to refrain 
from laying heavy burdens on their subjects, and 
incurring expenses which either are not for the 
general good at all, and exceed the reasonable 
functions of Government ; or else which are out of 
proportion to the wealth of the country, such as 
magnificent public buildings drawn from the sweat 
and blood of a miserable people. And from the 
sad pages of history we can learn that this unjust 
overburdening of private resources by public force 
has been in fact one of chief causes of misery and 
ruin. The evil deserves a peculiar title, fiscality; 
and its prevalence is attested by the prevalence 
of the popular view that to evade the payment of 
taxes is neither dishonourable or wrong. 

Amid the many examples of fiscality, two may be cited* 
First, the later Roman Empire, where taxation was so 
burdensome that some could bear it no longer, and fled away 
to the barbarians, according to a famous passage of Orosius, 
that should be graven in the mind of every statesman : "Jam 
inveniuntur Romani qui malunt inter barbaros pauperem 
libertatem quam inter Romanos tributariam sollicitudinem 
sustinere." As a second example we can take the Italian 
kingdom of our own day, where it has been calculated that 


a respectable artisan family of four persons living in Florence 
in 1890, and earning annually some 2,380 francs, paid as 
direct taxes 222 francs, as indirect 343, being a total of 565 
francs, or more than six times the amount that a family in 
similar circumstances would pay in England. True, the 
average taxation per head is greater in England than in Italy ; 
but such average (as Professor Geffcken points out) is no 
criterion of the burden ; for the wealth has to be considered 
rather than the heads ; and the average wealth per head is 
several times greater in England, and even in France, than 
in Italy. 

The average taxation per head has been reckoned at 
about 14 shillings in Russia, 26 in Prussia, 31 in Italy, 42 in 
England, 51 in France. But if the tax-paying capacity is 
considered, the order of those five countries, going from the 
lighter to the heavier taxed, is probably England, Prussia, 
France, Russia, Italy. And it naturally follows that expendi- 
ture which might be justified in a richer country, becomes 
an unjust oppression in a poorer country. 



We have now seen the nature of Government 
expenditure and revenue ; and how the burdens 
which a Government imposes on its subjects must 
be moderate if they are to be legitimate. But there 
is another condition of legitimacy : the burden must 
be imposed according to the rules of distributive 
justice ; and this brings us to the much debated 
question of fair taxation, and what is the proper 
basis, criterion, principle, or rule of fairness or 
equality. Of the many different views let us dis- 
tinguish the most important by names and letters. 
(A) The club theory, that just as members of a 
club pay all alike whatever their private circum- 
stances : so all members of the State should con- 
tribute the same amount whether they be rich or 
poor. This theory recognizes rightly that civil society 
affords to all alike many common benefits, the cost 
of which should therefore fall equally on all; but 
forgets that an annual payment of five pounds in 
taxes may be ten per cent, of the whole income of 
a workman's family, but only one per cent, of that 
of a middle class family, and not one quarter per 
cent, of that of a rich family. And the analogy of 


a subscription to private voluntary societies is a false 
analogy, because the State is a compulsory society ; 
moreover to work this theory would be impossible 
without a great previous levelling of inequalities in 

(B) The professional charges theory, that just as 
a surgeon, solicitor, or surveyor charge for their 
services according to the work done : so the Govern- 
ment should charge each subject according to the 
work done for him, that is, according to the expenses 
to which he has put the Government. This theory 
recognizes rightly that there are certain functions 
fulfilled by Government authorities for which par- 
ticular persons or groups of persons ought to be 
charged, as reaping the particular benefit or causing 
the particular expense. The distinction of local 
from general taxation rests on this principle ; and 
we might apply it with advantage to our criminal 
classes, making them work out where possible the 
costs of their imprisonment. But to make it the 
basis of taxation is impracticable and fallacious. 
Often where expenses can be ascertained, those who 
have caused the most, say a pauper criminal lunatic, 
can contribute the least ; and above all, the greater 
part of public expenditure is such, that no one can 
ascertain how much of the benefit is reaped, or how 
much of the expense caused, by any particular 
individual. Nor floes this matter; for the State is 
a necessary society, and for the common good ; and 
implies that the strong and upright shall help to 

r the burden i of the fallen and the weak. 

(C) The insurance theory, that just as the policy- 


holders pay according to their goods insured : so 
the citizens should pay according to their goods pro- 
tected by the State. This theory is akin to the last, 
but at least has the advantage of being clear and 
practical ; it was held waveringly by Adam Smith 
and confidently by many of his followers ; and 
would be an excellent theory, were it not that the 
State has to make clear and to enforce not merely 
rights of ownership, but all rights : and were it 
not that owners have not merely rights, but also 

The theories B and C are sometimes united and 
called the social dividend theory, or the enjoyment or 
quid pro quo theory ; but it is best to keep them 
separate, as the same objections do not apply to 
each indiscriminately. 

The reversion to a more reasonable view of the 
State led to the theory that taxation should be 
according to ability. But this criterion is illusory 
unless some measure of ability is agreed on. The 
two chief measures recommended have been revenue 
and personal sacrifice, which have resulted in the 
two following theories. 

(D) Theory of ability measured by revenue. This 
is sometimes known as the proportional theory ; in 
practice it comes to much the same as the insurance 
theory ; and it gives a simple and intelligible rule 
of finance, to aim at drawing from every revenue 
the same percentage (or proportion) for the public 
needs. But this simplicity brings injustice : transi- 
tory or precarious incomes ought not to be treated 
as if they were permanent and secure ; also the 


same income implies a very different tax-paying 
ability according as the holder has or has not a wife 
and children, or sick and aged relatives, to support ; 
and finally it is urged that five per cent, taxation on 
an income of £5, 000 is by no means so great a 
sacrifice in proportion, as five per cent, on £50. 

(E) Theory of ability measured by sacrifice. This 
may be called the equality of sacrifice theory, and has 
the obvious appearance of fairness ; for if a common 
burden has to be borne, it seems fair so to distribute 
the weight, that none shall feel it heavier than 
others. No doubt there is a great practical difficulty 
in determining the sacrifice ; for the incidence of 
many taxes is very difficult to ascertain, that is to 
say, on whom they really fall, and there is much 
dispute on what should be the degree of exemption 
of smaller incomes, or extra burdening of the larger. 
Still, if there is agreement on the principle of the 
equality of sacrifice, we may hope for some approach 
to agreement on its applications. The real weak- 
ness of the theory is rather this, that it takes no 
account of the historical circumstances of each 
country, and thus if applied, not a rule for a new 
country or for a new tax, but as the one principle 
to which all existing taxes must conform, then it 
is an illogical half-measure, and thus socialistic. 
For if we reject historical rights, exemptions, 
privileges and inequalities, and take from Peter's 
back an ancient burden and put it on Paul's, not 

iuse Peter is so weighed down that he cannot 
live a decent existence, but simply because we wish 
to make his burden no heavier for him than Paul's: 


why are we to leave the job half done, and not 
render Peter's life in all respects as easy as Paul's 
by equalizing their incomes ? And in fact a pro- 
gressive income-tax rising rapidly and progressively 
is a recognized route towards socialism. 

(F) Theory of social-political taxation, that taxation 
is a means in the hands of a wise and beneficent 
Government of redressing inequalities and suppres- 
sing abuses. This is pre-eminently the theory of 
the German State-worshippers and semi-Socialists, 
and has this of truth in it, that a humane and 
rational Government will strive to remove any 
oppression, suffering, or demoralization caused by 
any actual tax, and will gladly use its power of 
taxation, like any of its other powers, to promote 
the wealth of the nation, and to hinder misdirected 
production and misdirected consumption. But to 
use the power of taxation as a means of smoothing 
down inequalities of fortune, instead of turning 
those inequalities to good purpose, is socialism 
under the garb of humanity. 

(G) Conservative theory, that according to the 
maxim, "an old tax is no tax," no changes should 
be made in any existing and long established system 
of taxation ; and if new public revenue is needed, 
the aim should be so to impose the new taxes that 
individuals should be left in the same relative 
position as before. This theory is at the opposite 
pole to the one previous ; and is right in distinguish- 
ing old taxation from new ; but the rule for this 
new taxation seems less fair than that of equality 
of sacrifice ; and the weak point of the theory is 


that the oppression, the penury, or the demoraliza- 
tion due to a system of finance, are to be left un- 
redressed if only they are of a respectable antiquity. 

(H) Opportunist theory, that the Government 
should take what it can get easiest, and thus 
impose such taxes as are most easily assessed and 
collected, and will be the least obstruction to national 
wealth. This is sometimes known as the theory 
of sovereignty, because it follows from the theory 
of the absolute power of the sovereign over the 
subjects, from the complete subordination of private 
households to the great public household. In such 
case to aim at fair or equitable taxation would be 
as absurd as to aim at equity in dealing with the 
cattle on our farm. Hence this theory has been 
welcome to the statesmen and economists who held 
this theory of the absolute State, however they 
might differ in other respects. Hence too the 
enthusiasm in the seventeenth and eighteenth 
centuries for excise duties, then looked on as a 
sort of State gold-mine, these duties being precisely 
a form of taxation that disregards equality. 

But it is not enough to dismiss this theory by 
saying that the political doctrine on which it rests 
is immoral and false; for the opportunist theory 
another and more respectable foundation, 
namely, the doctrine of the universal diffusion of 
taxes (called also their shifting, transfer, or reper- 
cussion). In virtue of this diffusion, though ta 
as a whole might be too heavy, they could never be 

qual| no one ultimately burd< ued more than any 
else, for the simple reason that prices, wages, 


profits, and rents would be readjusted according to 
taxation. Thus injustice or inequality could at 
worst be only temporary, pending the readjust- 
ment ; and instead of the dangerous and futile 
pursuit of fairness or equality, the wise statesman 
should aim at such taxation as would least check 
produce and would press lightest on the nation 
taken as a whole. 

This theory, seductive and optimistic, is right in 
emphasizing the importance of the incidence of 
taxation, that the immediate payer is not necessarily 
the same as the bearer, that shifting is to be expected 
and allowed for : but wrong in supposing the univer- 
sality of such shifting. Even if per impossibile, mobile 
relations were universal, it is dubious whether the 
diffusion would work as supposed. But in the real 
world, with corporative and official (not to speak of 
servile and feudal) relations, as well as mobile, such 
diffusion is an illusion. There is shifting indeed, 
but partial and complicated according to the endless 
variety of particular circumstances. 

As far as it is possible to say anything in general on the 
transfer of taxes, it is perhaps best said in the words of 
Gustav Cohn : "There will be more shifting (Ueberwciltzung) 
the clearer the sense of being unfairly burdened, the stronger 
the will to shake it off, the greater the opportunity given by 
the economic surroundings for shaking it off. Hence taxes 
can be shifted by large employers more easily than by 
workmen ; by well paid and organized workmen more easily 
than by the others ; by combined more easily than by single 
entrepreneurs ; by owners of moveable capital more easily 
than by owners of immoveable capital ; by men regularly ' in 
the trade ' more easily than by outsiders or amateurs ; by 
traders more easily than by the consumers who purchase 
from them." (Finanzwissenschaft, p. 311.) 


Again, the theory of diffusion is right in indicat- 
ing that all taxation must come from the sources of 
revenue, that where the poorer classes have nothing 
wherewith to pay, then, though you may seem to 
be drawing taxes from them, you must really be 
drawing them from some one else. But the theorv 
is wrong in not seeing that precisely new taxation 
may be shifted to the most helpless, forcing them to 
extra toil and penurious living, and may reduce 
them to the state of having nothing wherewith to 
pay ; or may precisely so effect public opinion, as 
to afford an excuse to the rich, more or less valid, 
for neglecting the duties of their office. The English 
poor-rates and the heavy taxes on landowners in 
Lombardy are instances in point ; and the tax to 
meet the new Insurance Laws of Germany will 
probably soon furnish another illustration. 

(I) Finally, the eclectic theory of taxation which 
uses according to the occasion, now one and now 
another of the preceeding theories to justify or 
condemn particular taxes. No doubt in most 
countries the system of taxation and the popular 
views on it are in fact a mixtum composition. But 
then precisely it is the business of economic science 
to distinguish what is mixed up in practice and in 
minds. No doubt, also, in a good system of finance 
a variety of principles, as we shall sec, is called for. 
But then precisely it is the business of economic 
the grounds of this variety and the 

uiony of the different principl 

The true th< ory of fair taxation lomev hat 

follows. In no actual an we pul a ide the 


previous history of the country ; for the equalization 
of taxation in disregard of antecedents is only to be 
justified on the same grounds as the equalization 
of property, and thus is socialistic and not to be 
justified. So when we see de facto holders of political 
power with a de facto public revenue raised in various 
ways and pressing unequally on different households, 
let us not make war on these privileges, exemptions, 
or inequalities, but leave the property and the power 
in the hands in which we find them, recognizing the 
course of history as providential, and that even ill- 
gotten wealth and dominion become purified by the 
lapse of time and the permission of Providence. So 
far this is the Conservative theory (G) given above : 
only observe that a good deal more has to be said ; 
that this justification only applies to old burdens 
and revenues, not to new ; and that even touching 
the old, it presupposes that no natural rights are 
being violated, that no one is so overburdened and 
oppressed through this old system of finance as not 
to be able to live a decent life according to his 
station, that no serious occasion is given by this 
system to fraud or lying, or depraved consumption, 
no serious check to national wealth and enterprise. 
Hence this complete theory of taxation is by no 
means of a nature to bolster up old abuses or to 
perpetuate oppression. 

But in the course of time the State authorities 
may justly require fresh revenue. What in this 
case is the principle to be followed as the historical 
principle is inapplicable ? The answer depends on 
whether the new taxation is for general or special 


purposes. If for general purposes, then the theory 
of ability measured by sacrifice (E) seems the fair 
one to apply. 

Xo doubt we may dispute on how to apply the rule of 
equality of sacrifice. If the theory of Jevons and others on. 
the progressive diminution of utility with increase of posses- 
sions be rejected as non-proven (see supra, pp. 196 — 198),. 
then progressive taxation seems in itself and by itself inadmis- 
sible. But as part of a whole and well-balanced system of 
finance, progression may be a most useful method. Thus in 
our own country and in some others there is an immense 
convenience in drawing a large part of the public revenue 
from excise or custom duties on articles of popular consump- 
tion. Now assuming that such taxes are shifted as they are 
meant to be from the producers or importers to the con- 
sumers, and are not again shifted from the poorer consumers 
to their richer employers or landlords, these taxes obviously 
fall much heavier on the poor than on the rich. The 
percentage of a bricklayer's income spent on taxed beer and 
spirits, taxed tea and tobacco, is many times greater than 
that of the wealthy contractor who employs him. It is but 
fair, therefore, that the income-tax or house-tax paid by the 
bricklayer should be at a lower rate than that paid by his 
master, so that the one inequality may balance the other.. 
Again, where the poorer classes are not protected by humane 
laws, and men are allowed to enjoy great wealth without 
incurring great obligations, then a stiff progressive income-tax 
may be looked on as a substitute — miserable indeed, bat 
perhaps better than no substitute — for the fulfilment of the 
social office of the rich. 

Pitfall, into which both advocates and opponents of 
progressive taxation often fall. To confuse the: two very 
different aims of such taxation, the one to carry out equality 
of sacrifice in taxation, the other to carry out an equalization 
of property. The latter aim is socialistic; and the upward 
and upward limit of progression have do bounds other 

than the (ear Of driving the. rich to take their wealth OUl of 
the country or to draw the sword in self <]( f< But the 

rim is quite different, being Bimpl) to equalize aot incomes* 
but sacrUu 1 

IV ixation in its most ible form will be 

(the figure put in being merely illustra- 

ibje< I to any 1 ion) : ] <e1 a minimum 

£ go be held needful for living a decei nee, 

Ifl 1 ipt from taxation I , of Incalculable value 



in private use. Then, in taxing all income over and above 
this, let the first £50 of this surplus be held to be of much 
more " utility " to the holder than the second ; and the 
second /"50 much more, but yet not quite so much more, than 
the third ; and the third, again, than the fourth, the extra 
utility continually diminishing, but ever by smaller steps, till 
we soon come to the point when it can be practically dis- 
regarded. The proper progressive income-tax will therefore 
be what is sometimes called degressive taxation, a uniform rate 
being fixed for large incomes, but gradually lessened for the 
smaller, and a minimum being wholly exempt ; all of which 
will be best understood by the following table : 

Total income. Taxable income. Rate of taxation. Amount of taxation. 




per cent. 

£75o 05 




> 1 





1 1 

40 15 





31 10 




* * 






11 5 




■ 1 

4 10 




■ > 


50 00,, 00 

Here the income exempt is £50 ; the income-tax on the 
surplus is 74 per cent., with a reduction of 4 per cent, if the 
surplus is below £550; of 1^ per cent, if below £450; of 
3 per cent, if below £350 ; of 44 per cent, if below £250 ; and 
of 6^ per cent, if below £150. 

As said above, the assumption of diminishing utility is 
disputable. But many good authorities believe in it, who 
have no sympathy with the socialistic form of progressive 

Other applications of the principle of equality of sacrifice, 
such as reductions for heads of houses who have to support 
young children or incapable dependents, and for temporary 
or precarious incomes, can be made by adepts in finance ; 
and as far as need be, can be mentioned when we are con- 
sidering particular taxes. 

It may be objected indeed that by the shifting 
of taxation all our efforts after equality will be 
frustrated. Let us answer that the effort to act 
fairly is in itself a gain, though its particular aim is 
frustrated ; and secondly, that this shifting other 
than what we foresee and intend, can be kept in 


bounds by rational legislation, in particular by those 
humane laws of debt and those wide-reaching laws 
of responsibility urged in the eleventh chapter of the 
previous Book. 

But there may be much Government expenditure 
not for general but for special purpose, for the 
advantage of particular individuals or groups. Here 
the theory of professional charges (B) can be rightly 
applied, and those made to pay who gain special 
advantage or cause special expense. 

This is peculiarly applicable to local Government and the 
•costs of making or improving roads, streets, bridges, harbours, 
quays, the cost of lighting, paving, draining, of water supply, 
town halls, market buildings, and public gardens. Observe 
that after the payment is specialized to the locality, the 
question further arises whether all the inhabitants are to pay 
or only some ; and much of good local Government depends 
on the proper application of the two principles of equality of 
sacrifice and of professional charges, according to the circum- 
stances. The recent controversy on " betterment " shows 
how delicate but how necessary is the right application of 
the principles. 

tther question, how far the cost of actions at law 
should fall on the parties and how far on the community at 
large, is a matter of great interest and gravity, but to be left 
to political science. 

Finally, it is probable that opportunities will 
arise for applying in ;i certain and measure 

tli<: social political theory (F); for example, to check 
among ourselves tin- abuse of intoxicating drinks; 
to promote the consumption of milder drinks by 
high li< >f differentia] taxes; and in general to 

apply sumptuary lam i adapted to tin- local circum- 
stan< - thai < xtravagance which it would be 

imprudent or impossible to suppress, will be so 


far beneficial as to pour a stream of gold into the 
public treasury. 

Besides the rules of justice and morality that 
taxes be fair or equal, and also moral, that is, not 
causing demoralization by occasioning fraud, there 
are certain technical rules or maxims to be remem- 
bered : namely, that as far as possible a tax be 
certain, in order that you may know exactly your 
liabilities ; convenient, being levied at the time and in 
the manner least troublesome to the payer and least 
exposing him to annoyance by the officers of the 
law ; inexpensive, that is, with small costs of collec- 
tion ; self-adjusting, that is, rising of itself with 
growth of wealth and population ; uniform in yield, 
so that the finance minister may know how to frame 
his budget ; flexible, that is, easily able to be raised 
in an emergency and again reduced ; innocuous, that 
is, causing no serious damage to any valuable 
industry or enterprise ; and straightforward, falling 
on the shoulders it is meant to fall on. 



Let us apply the principles of the last chapter in a 
brief survey of the principal forms of public revenue, 
beginning with the rents and profits of Government 
property and agency, which as far as they go are 
a substitute for taxation, and which may perhaps 
be called with convenience the revenue from fiscal 

Such fiscal domain may be taken to include all 
capital in the hands of either central or local 
Government, all lands, forests, mines, factories, rail- 
ways, roads, harbours, drainage, gas, or water- 
works, banks, posts and telegraphs owned by public 

It is best to exclude from the fiscal domain certain mono- 
polios in Government hands, like salt or tobacco in various 
countries, where such monopolies both arc and are meant to 
be simply a convenient mode of levying an excise or custom 
duty on particular goods ; and thus really belong to indirect 

here they will be treat* 

Against much of Government revenue being in 

the shape of tiue from fiscal domains, three 

principal i been 1 ai led. I ii I , the 

moral evil, that ( of jobbery and corruption, 

of barsln ml in , are multiplied 


unnecessarily; secondly, the mental evil, that habits 
of vigorous private action are weakened, and that 
there is danger of all talent being concentrated in 
the service of the State ; thirdly, the technical 
evil that from the lack of interest in the result, 
efficiency of production is less, and that dawdling 
routine, and extravagance are the rule instead of 
the entrepreneur's eager watch for improvements 
and economies. 

Now, as far as we can say anything in general 
without regard to particular Governments, these 
objections are of great force against much of the 
public revenue being in the shape of profits, but of 
far less force against much of that revenue being 
in the shape of rents. Indeed, there seems little 
objection to Government drawing a considerable 
revenue in the shape of moderate quit-rents from 
farming land, ground-rent from houses, royalties 
from mines, and payments (whatever the legal 
denomination) from monopolist companies who are 
working railways, canals, and national or provincial 
banks. And there is the great advantage that taxes 
remain as a resource in an emergency, and mean- 
while are in proportion small as the fiscal domain 
is great, and the ill-feelings, dishonesties, and hard- 
ships that cling round taxation are kept small also. 

Fortunate, therefore, are those nations like the French, 
where the ownership of railways was granted only for a 
certain period, so that a vast domain will some day be recon- 
stituted for the State in the shape of the ownership of all 
the railways, which then can be let out to companies at rents 
that will greatly ease the shoulders of the tax-payers. No 
doubt there is a political argument that an abundant fiscal 
domain may render the executive Government independent 


of Parliamentary control, by rendering unnecessary the grant- 
ing of supplies ; and in certain historical cases this has been 
a valid argument ; but hardly valid anywhere in our own day. 
And considering the ever-recurring danger of fiscality (supra, 
p. 502) that even now is hanging over us, it seems the safest 
course to revert to the old historical view, that " the king 
should live of his own" (Cunningham, Industry and Comn: 
p. 143), namely, that the public revenue should be drawn 
primarily from the fiscal domain and that taxation should be 

Revenue in the shape of profits, as already said, is to 
be judged differently, and generally condemned. In some 
cases, indeed, counter-reasons may outweigh the objections 
to Government agency, though this is chiefly where no great 
revenue is to be got, but where there is a great gain to the 
nation or locality from works such as constructing light- 
houses, harbours of refuge, sea-dykes, regulating rivers, 
planting or preserving forests to protect against winds, 
drought, or flood, setting up model farms and breeding- 
establishments, making roads, paths, drains, and sewers, and 
keeping them in repair. In such cases the reward, though 
very great, is too indirect and remote, or the means of 
exacting payment too difficult for an)- private agency to fulfil 
the work, which therefore naturally devolves on local or 
central Governments. 

it, on the other hand, the existence of a practical mono- 
poly is by no means a counter-reason adequate to outweigh 
the objections to State agency. The real duty of Government 
towards monopolies (as we have seen, supra, pp. 216, 428, 432) 
is to prevent the abuse of their power, to secure fair prices, 
not monopoly prices, to prevent discrimination, and to compel 
[tain cases that some less remunerative work dike the 
construction of branch lines) be carried out in consideration 
of the monopoly. This is common sense; but not common 
think there is no alternative between a tyrannous 
monopoly and the Government itself bee >ming the provi 
nor to point to the German State railwi one 

' iple (if it really is an examp] enough 

I conclusion, or a thou bureaucracy 

and permaxi duel tl,. >□ on findis 

London and in PaJ i and Bu< 

\\ from fi cal domain ui 

atral or local Go^ 


ment, recourse must be had to taxation, that is, 
compulsory payments from the subjects. On the 
proper classification of taxes, there is no agreement, 
and the matter is very complex and difficult, but 
fortunately of no great consequence. It seems best 
first to distinguish real, impersonal, or objective taxes, 
"where the tax is levied on particular goods irre- 
spective of the personal conditions of the owners, 
from personal or subjective taxes where the income or 
property of a particular person is the object of the 
tax ; and secondly, to distinguish direct taxes, where 
the payer is the person intended to be the bearer of 
the tax, from indirect taxes where the payer is meant 
to shift the tax to some one else. 

The distinction of direct and indirect taxes is sometimes 
used in other senses ; but this sense is the most common and 
most convenient. 

Then let us make five chief heads of taxation : 
I. Impersonal taxes on property or produce. II. Per- 
sonal taxes on capital or revenue. III. Direct taxes 
on expenditure. IV. Indirect taxes on expenditure. 
V . Taxes on occasions, notably on contracts, on 
deaths, and on the performance of Government 
•functions on account of particular persons. 

I. Impersonal taxes on property or produce. In 
'many countries a great proportion of the revenue, 
notably in China and India, is drawn from taxes of 
this kind, and among ourselves the bulk of local 
taxation. Their character depends on many circum- 
stances. If they are a permanent settlement for a 
iixed sum, like the English or Bengal land-tax, they 
come by lapse of time to be almost a part of the 


fiscal domain instead of a regular tax, and they obey 
most of the maxims of taxation given at the end of 
the last chapter. But they utterly fail in two points, 
being neither self-adjusting nor flexible. Hence they 
cannot suffice for a growing society, nor be of avail 
for an emergency. If, on the other hand, they vary, 
we escape one trouble to fall into another. If vary- 
ing simply with the produce (like tithes), they check 
improvements and thus are no longer innocuous, 
and also cease to be uniform, inexpensive, and 
moral, though probably fair. And if they vary 
according to the supposed average annual revenue 
drawn from the property and its consequent ex- 
change-value, then the fairness becomes dubious, 
as the personal condition of the payer seems in this 
case to need attention. Besides, we meet the great 
practical difficulty of ascertaining the amount and 
variations of value. We may adopt the Continental 
plan of an elaborate survey and register, or cadaster 
of property — a Domesday Book ; but this is so 
expensive if it is to be efficient, implying a well- 
paid staff of officials perpetually revising the 
cadaster, that it is likely to be inefficient ; while 
the English system of rating property is somewhat 
r ular and hap-hazard, and could hardly work 
in a country where letting and hiring of lands 
and buildings were not very prevalent. Above all, 
in commercial times and with elaborate 
systo ;" banking are liable, as many examples 

have shown, to become an unfair burden on the 
nominal owners or occup I land, while tli 

who on the principle oi equality of 


well able to pay, such as merchants and dealers, 
bankers and money-lenders, mortgagees and annui- 
tants, in part or wholly escape. 

The general property-tax of the United States is perhaps a 
good example of how unfair this kind of tax can become. But 
observe that most of the objections fall away in the case of a 
simple society, almost wholly rural, with extensive, not inten- 
sive agriculture, and where property is so plain that assess- 
ment is easy, such as the English colonies in North America 
in the eighteenth century, or England itself in the fourteenth. 

II. Personal taxes on capital or revenue. These 
taxes seem at first sight most in conformity with 
fairness, and have many advocates, especially a tax 
on revenue or income-tax, as alone securing equality 
of sacrifice, and therefore fit and alone fit to be the 
imput unique or single tax in a civilized State. And 
undoubtedly for new taxes the greatest equality 
would be reached by an ideal income-tax, which 
would be charged strictly on net and not on gross 
revenue : which would exempt the minimum revenue 
needed for decent existence ; which would be reduced 
for each head of a house in proportion to the number 
of persons, like young children, dependent on the 
head ; which would duly regard the difference of 
permanent and secure from temporary and pre- 
carious incomes by taking a greater percentage 
from rents than from profits, and from profits than 
from wages ; an income-tax, finally, which would be 
assessed and collected without serious fraud or error. 

Unfortunately this last condition, which is almost 
an impossible one, renders it hard to fulfil the others. 
Even with the best of good intentions, the hidden, 
varying, and complicated character of so many 


incomes in a commercial country make accuracy 
hopeless. And then in such cases the temptation 
to defraud the Government is irresistible, and de- 
fraudation gives rise to vexatious inquisitions, which 
are often in vain, and thus make the tax unfair as 
well as demoralizing. Probably, indeed, these diffi- 
culties are so far capable of reduction, that we can 
retain a moderate and one-sided income-tax, and 
balance the inequalities by other taxes. But if it 
is to be the one tax to defray the expenses of central, 
and even as some wish, of local Government, then 
we may justly cry out : impot unique, impot inique, 
that is, a single tax is a sinful tax. 

How far our English income-tax departs from the ideal, 
and how frequent are the frauds that it occasions, we know, 
many of us, only too well. Perhaps the growing proportion 
of receipts in the shape of dividends, and the easy reform of 
compelling all mortgages and charges on lands and buildings 
to be registered and public, may enable us to give up the 
demoralizing attempt to reach oven the approximate amount of 
profits and earnings; to retain the income-tax on dividends, on 
the interest of mortgages, and on all other rents; and to reach 
the trading and professional classes by arranging them in 
many divisions, and levying on them a classified capitation-tax, 
rather arbitrary indeed and rough, but certain and convenient. 
This is, or was, the Prussian method of taxing small incomes; 
but with us the small ll pay their share by their 1 

contribution to indirect taxes on expenditure. 

III. I J ircct taxes on expenditure. These taxes are 

applicable to the enjoyment of d\ goods that are 

Dot easily conceal ad anion take the 

form of taxes on < n »ome 

minor obji ml above all, on dwelling-hou 

'1 n and are in J countii 

I ml li;i\ 

prai tax, on 


the ground that expenditure on a dwelling-house is 
a fair criterion of income. But even were it so, this 
expenditure is no easy matter to ascertain, and in 
fact the criterion is grossly unfair. For (a) in the 
same country the cost of dwellings are very different 
in different parts, and thus to get the proper accom- 
modation for a man's household, much more must 
be paid in one place than another. Also (b) those 
who disregard this proper accommodation escape a 
great portion of the tax, which thus is demoralizing, 
fostering hotel and lodging-house life. Demoralizing 
also is the further unfairness (c) that large families 
are grossly overburdened by this tax. Unfortunately 
a tax on houses is by comparison so easy to exact 
and so impossible to evade, that it is a favourite 
resource of Governments. 

How far in England the various forms of taxes on houses 
are to be justified as balancing other parts of the financial 
system, is dubious ; but given the taxes, then probably the 
exemption from Inhabited House Duty of houses of gross 
annual value under £20, and the recent reduction of the duty 
on houses of under £40 and under £60, are wise and fair 

IV. Indirect taxes on expenditure. These can 
roughly be divided into excise duties or taxes on 
the manufacture # or sale of particular goods, like 
tobacco or whiskey ; customs, or duties levied on the 
import or export of goods, and internal transit duties. 
The latter are very important in some countries 
like France or Italy in the shape of octrois or dues 
levied on goods entering towns, and much of local 
taxation there is met in this way. In the United 
Kingdom the first two are alone important, and of 


such importance that more than one half the revenue 
of the central Government is drawn from them. 

It is to be observed that many productive Government 
monopolies are really indirect taxes on expenditure, and are 
not to be reckoned as part of the fiscal domain, but simply as 
the cheapest way of levying an indirect tax on a particular 
commodity ; such, for example, is the salt monopoly in 
Austria, Italy, and India, the tobacco monopoly in Austria, 
Italy, France, and Spain, and the opium monopoly in India ; 
the general conclusion being that if a heavy tax is to be 
levied on a particular article, a Government monopoly of its 
manufacture or sale is often the best way of levying it. (See 
Professor Bastable on Taxation through Monopoly, in the 
Economic Journal, June, 1891.) 

These indirect taxes, extolled in the earlier part 
of the nineteenth century as the modern mild and 
civilized form of taxation in contrast to harsh, semi- 
barbarous and mediaeval direct taxes, came later to 
be denounced as a grossly unfair burden on the 
working classes, and inconsistent with popular rule. 
Both views were exaggerations and treated a com- 
plicated question as though it was simple. 

Under certain conditions such taxes violate most 
of the maxims of taxation : are not straightforward, 
often ruining traders and producers instead of being 
shifted, as they are supposed to be, to consumers; 
are not innocuous, hampering industrial processes, 
so as to make it easy to collect the duty, or divert- 
ing industry by protective laws into less fruitful 
channels; are not flexible, for they cannot be raised 
in an emergency, according to the saying of Swift 
that in the arithmetic of the cu I no and two 

sometimes do not make four, but only one; arc not 
inexpensive, but the costliest of taxes, needing, 


reform them as you will, so many officers to levy 
them ; are not moral, because they foster smuggling 
and illicit production ; and, as the head and front 
of their offending, are not fair : not fair (a) to small 
producers and dealers less able to shift or await 
the shifting of the tax, and more inconvenienced by 
the conditions of production and sale imposed by 
the revenue officers ; not fair (b) to the poorer 
classes, because the proportion of their income 
spent on articles of general consumption (which 
must be taxed, if these taxes are to be of financial 
importance) is much larger than the proportion 
spent by the rich ; not fair (c) to large families, 
who must spend more on these articles than small 
families with exactly the same income. And to say 
that these taxes are voluntary because you can 
escape them by not using the taxed article, though 
true of unusual and fanciful superfluities, is mislead- 
ing if applied to articles, like tobacco, of general 
consumption, and if applied to articles of practical 
necessity for a decent life, is a cruel mockery. Nor 
can injustice to the poor be mitigated by ad valorem 
duties, that is, by duties regarding not quantity but 
value ; for this means an inquisition into quality, 
which often presents great technical difficulties ; and 
the extra equality, even if obtained, would be dearly 
paid for by the tax becoming more demoralizing, 
more expensive, and less certain. And if in order 
to minimize both the unfairness to small producers 
and the great costs of collection, customs and excise 
are levied, as in England, on only a few goods, then 
the unfairness to the poorer classes in general is all 


the greater, because most of the superfluities of the 
rich must go tax free. 

Nevertheless there are certain conditions under 
which the foregoing objections lose their force or 
are outweighed, and indirect taxes on expenditure 
can be approved. First and foremost is the case 
where such taxation can serve to check misdirected 
consumption, notably to check the abuse of in- 
toxicating drinks. The reforms needed in the 
English law have already been sufficiently explained 
{supra, pp. 172, 173) : the point here is that a great 
part of the Government receipts from drink are a 
burden on no one ; for were the money left, as the 
saying is, to fructify in the pockets of the people, 
it would be so used as to impoverish, not to enrich 
them. Secondly, in those cases already fully ex- 
plained (supra, pp. 245 — 249), where protective duties 
are to be desired, there the increase of national 
wealth outweighs the inequality of those indirect 
taxes, which inequality moreover can be partially 
smoothed down in the apportionment of other taxes. 
Thirdly, where from either of the two foregoing 
grounds, or for other reasons of State, imports and 
exports are examined, there the Government incurs 
little extra expense of collection, and inflicts no 
t hardship, and ^ r ains a great revenue, if it can 
find articles which are not, like bread, salt, soap, 
dairy produce, or oil, of prime necessity, but are 

aeral consumption like tea, coffee, su 
and tol land, 1 irits and beer. I 

do not say that the poor man's pipe is not too heavily 

; ourselves — that is a detail ; hut 


the great convenience in paying these taxes, instead 
of having to face the rigorous visitation of the tax- 
gatherer, is so great a boon to so great a number, 
as to outweigh the undoubted inequality ; which 
also, as already said, should be smoothed down in 
the apportionment of other taxes. Fourthly, this 
inequality in a great measure evaporates after a 
sufficient length of time ; and thus the abolition of 
old duties, whether import, excise, or octroi duties, 
is to be judged on other grounds than the imposition 
of new ones ; and is not to be urged on the ground 
of fairness, but only on the ground of being a heavy 
burden to the poor, or a source of demoralization, 
or too expensive to collect. 

V. Taxes on occasions. Three principal kinds 
deserve attention. First, charges for particular 
work of a political character done by Government 
on account of particular individuals, the charge 
being in some proportion to the expense, for 
example, fees of court, fees for registration of birth 
or marriage, and judicial fines. But though the 
proper regulation of these charges is a serious 
problem for political science, they are of less 
importance from the mere financial point of view, 
quite unlike the two remaining kinds of taxes on 

The proper name and limit of these charges is an obscure 
question. Fees, costs, and charges are the words we commonly 
use as distinct from rates and taxes. So the Germans dis- 
tinguish Gebiihren from Steuer, and the Italian tasse from 
imposte. But whatever names we use, the point is to keep 
such payments distinct from others which are quite different, 
though both may be raised by the same technical method, 
namely, by the compulsory use of stamps. Thus the Govern- 


meat may undertake some non-political function like letter 
and parcel postage, and be paid in the shape of stamps ; or 
may raise indirect taxes in the shape of stamped licences ; or 
may raise, as we shall see immediately, a great and general 
tax on transfer of property by the compulsory use of stamps. 
But such payments being either for non-political services or 
else bearing no proportion to the expense caused or the 
benefit received, are quite distinct from charges as defined 

Death duties are the second chief kind of taxes 
on occasions. In many countries they are of great 
amount, and in the British Isles under the title of 
the Probate, the Legacy, and the Succession duties, 
yield about a tenth portion of the Imperial revenue. 
Such duties have much to recommend them from 
their conformity with the technical maxims of taxa- 
tion, being straightforward, flexible, fairly uniform, 
self-adjusting, inexpensive, and certain. And it is 
hard to prove that they injure production more than 
any other tax of a similar amount ; for if they tend 
to reduce the scale of industry carried on by 
individual families or firms, they tend also to cause 
a larger proportion to be carried on by joint-stock 
companies. But then they make no approach to 
fairness or equality, the heirs or legatees paying 
alike whether they be rich or poor, infirm or capable. 
And if the tax is levied where the property pa 
not to strangers or to distant relatives, but to i 
relatives or to members of the same household (and 
if tl LSea are exempt the tax will yield little): 

then the very occasion ring the family, aamely 

the Heath of its 04 id, is often an ion oi i 

loss of family in »n, 01 pro- 

fession uings of the deceased being ;it an « nd, 



and almost always an occasion of heavy medical 
or funeral expenses. Such taxes therefore cannot 
be approved unless they exempt altogether all 
successions of near relatives, to whom nothing 
should be charged except the bare cost of the legal 
formalities needful in civilized societies at every 
transfer of ownership. 

It is not surprising that writers like Mill, without any 
appreciation of the unity and extent of family life, and with 
no care for the Christian family, should approve of this kind 
of taxation ; or that in France, where family law is the model 
of what it should not be, the sums levied on successions and 
donations reach some eight million pounds sterling a year. 
What is surprising is that in England we are so tolerant of 
similar duties, and do not see the danger of a tax that is 
ready as a weapon when the opportunity comes in the hands 
of the Socialists. For a rapidly rising progressive legacy and 
succession duty, being less easy to evade than a progressive 
income-tax, is a shorter road to socialistic equalization of 
property, and has the extra advantage of giving a blow to 
the sense of the unity, permanence, and responsibility of 
family life. 

Taxes on contracts are the third chief kind of taxes 
on occasions, for example the stamps on convey- 
ances, on leases, on indentures of apprenticeship, 
on bills of exchange, on cheques, and on receipts. 
In France the gigantic sum of eleven to twelve 
million pounds is annually raised from this kind of 
taxation ; among ourselves not much more than a 
third of that sum. These taxes, as far as they can 
be judged in the lump, by no means conform like 
the death duties to the technical maxims of taxation : 
are often, for example, not straightforward, being 
uncertain in their incidence ; often not innocuous, 
hindering the sale of small plots of land ; while they 
equally offend against fairness, being levied in total 


disregard of the circumstances of the payers, and in 
fact often falling on persons in sore necessity at the 
crisis of their necessities. 

Whether some of them, such as the stamp duty on bills of 
exchange yielding some three-quarters of a million in 1889 
— 90, can be justified as a set-off to the imperfect payment 
of the income-tax by the commercial classes, is a point that 
might be argued. But this does not affect the irrational and 
unfair character of this branch of taxation taken as a whole ; 
and the probability that among the owners of property 
precisely the poorer and weaker will in proportion pay the 

Mark as the moral of this brief survey of taxation 
how beneficial is a good fiscal domain that allows 
taxation to be small and supplementary ; how great 
the likely and even the inevitable hardship, injustice, 
and deception accompanying many kinds of taxa- 
tion ; how pressing the need in many countries of 
resisting the demon of fiscality, and of reducing the 
expenditure of the Government to conformity with 
the resources of the subjects. 

Pitfall. To excuse the shocking oppression and injustice 

of the last-named kinds of taxation by pointing to " the ever- 

increasing needs of the State, the difficulty of increasing the 

direct taxes and those on consumption, the ease and cheap- 

ction when the payer has the means of payment 

at hand." So argues a leading Italian economist, Professor 

Cossa, forgetting that the State is for man, not man for the 

id that the methods of taxation ought to be Bomewhat 

from the methods of brigands, who seize what can 

be seized easiest. 



The need of restraining the reckless expenditure 
of Governments is all the more pressing because 
of the vast development of Government borrowing, 
which means a vast development of taxation in the 
future. The nature of such borrowing we have 
already examined in the eleventh chapter of the 
Second Book, and seen how it implies a particular 
direction of national wealth and labour, and the 
formation of a multitude of annuities payable out 
of the public revenue ; how, moreover, it implies, if 
there is to be much of it, a widely extended system 
of banking, and is liable to the danger of allowing 
these indispensable agents to become the masters 
of the vState. (Supra, pp. 315 — 317.) We have seen 
also in the Third Book how this borrowing has 
caused a mighty increase in the proportion of 
income that takes the form of non-industrial rents 
(supra, p. 335) ; and how among the various and 
complicated causes affecting rates of interest in 
commercial centres, the vast borrowing by public 
authorities for non-industrial purposes, is one that 
tends to raise the rates, especially the rate on 
securities. (Supra, pp. 360, 361.) And we reckoned in 


countries inhabited or controlled by Europeans, and 
under the modern system of banking, that nearly 
300 million pounds was the annual charge paid as 
annuities to those who had allowed their property 
to be diverted to such purposes in consideration of 
such annuities. 

Now for a moment assuming that a large sum is 
really needed to be raised by Government to meet 
some grave emergency or to gain some great benefit, 
then in 99 cases out of 100, in the commercial 
countries of Europe and America, a Government 
or municipal loan, raised according to the proper 
technical methods, is a fairer and less burdensome 
mode of obtaining the sum needed than an increase 
of taxation. 

There is sometimes, indeed, a third course, that of 
alienating fiscal domains. But even where available such 
a course is doubly bad, because the advantages are lost of 
retaining such domain as a great source of revenue, and 
because a vast sale on an emergency means selling at a great 

The reasons why it is better for a Government to 
call on its subjects to pay permanently the interest 
of a loan, rather than all at once to pay the 
equivalent to the principal, are as follows. First, 
we avoid an unfairness to holders of temporary 
incomes who in the other case would be paying for 
expenditure of which the chief benefit would be 
reaped by Others. Secondly, we avoid an unfairness 
and injury to those whose property or income is 
of such a character that if they had to p large 

sum at once, they would have to sell property at a 
1 . or borrow at a higher rate of interest than the 


Government, and higher for individuals in propor- 
tion to the smallness or uncertainty of their income. 
Thirdly, we avoid unfair hardship to those who suffer 
loss of fortune soon after the emergency, and an 
unfair boon to those who gain a fortune soon after. 
" A collective debt defrayed by taxes has over the 
same debt parcelled out among individuals the 
immense advantage that it is virtually a mutual 
insurance among the contributors." (Mill, Political 
Economy, V. vii. § 2.) Taxes to pay the interest of 
the Government loan shrink with a man's shrink- 
ing fortunes ; but the debts do not shrink that he 
has incurred to pay the war taxes. Fourthly,. 
although the diversion of a nation's men and goods 
to non-industrial purposes is the same (putting 
aside loans from foreigners) whether the expense 
is defrayed by loans or taxes, nevertheless from the 
less disturbance to private industry and property 
when there is a loan, as those are the immediate 
payers who can pay with the most convenience, 
there follows less dislocation of industry (supra, 
p. 311), and thus less waste of wealth and a lesser 
aggregate of suffering. 

It may be objected, indeed, that by the multiplication of 
annuities there is a multiplication of those who hold property 
without responsibilities, and who have no interest, as Adam 
Smith urges, in the improvement of any particular portion of 
land, or good management of any particular portion of capital 
stock. This is true if the debt is very large, and is a reason 
for keeping it within bounds ; but is probably much less a 
check on industry than the indebtedness which would result 
from private borrowing to pay heavy taxes ; and can be 
mitigated by wise laws on responsibility. 

It follows from the foregoing arguments that when a 
Government debt has been contracted, it should not be paid 



off so rapidly as to require a serious annual addition to the 
taxation. If the debt is large it should indeed (except in a 
young community rapidly advance in wealth and population) 
be paid off, slowly no doubt, but still paid off; and for three 
reasons : (i) that if a fresh emergency arose, the new debt 
added to the old would cause too much revenue to be in the 
form of annuities ; (2) that if population and wealth declined 
the actual debt would require heavier taxation to pay the 
interest ; and (3) that a great change in the exchange-value 
of money might unfairly burden in one case the annuitants 
(fund-holders), and in the other case the tax-payers. 

Smooth, therefore, and easy might seem the 
course before us, and that we might admire the 
vast growth of national and municipal indebtedness 
as a brilliant illustration of civilized finance. 

Unfortunately our tranquillity rests on the 
assumption that the sum expended by the authori- 
ties was the sum it was right for them to expend, 
and that the only question was how best to raise 
it : whereas in most cases the expense would have 
been less, or not incurred at all, precisely had it not 
been possible to raise a large sum by way of loan, 
and in many cases, also, this expense was precisely 
what ought not to have been incurred. Hence a 
tremendous objection to loans is the fatal facility 
they offer for mis-spending the public moneys, of 
which the political history of the present century 
affords abundant examples. Further, we have 
assumed that the loans have been raised according 
to the proper technical methods, such as would be 

I by the central Governments of England, 
Prance, or Germany. But this assumption in many 
s of central, and still more of local Govern- 
ments, is Badly at variance with the as the 
hist >ry of so many the immi 


enrichment of so many financial middlemen, and 
the immense sums drawn, now from deluded bond- 
holders, now from helpless tax-payers, bear witness. 

For example, one half of the present large debt of the city 
of New York has been reckoned to be the result of corrup- 
tion and fraud. 

Again, great loans even when raised for a good 
purpose and without folly or fraud, may render 
weak States subservient to foreign bondholders, or 
may render Governments subservient to financial 
magnates (la haute banque), who may control the 
press, manipulate the stock exchanges, tamper with 
the diplomacy, and even with the internal laws and 
policy of the State ; and subject a Christian people 
to the dominion of the Jews. 

But abuse does not take away the use ; we can 
say with a French Minister: Faites-moi de la bonne 
politique et je vous ferai de la bonne finance, that is, 
the finances will be of the same complexion as the 
rulers ; the humane and rational Government of a 
Christian people will know how to use without 
abusing the valuable expedient of public debts ; 
and to these debts, whether national or local, we 
can apply the same formula as was suited to those 
other conspicuous institutions of our time, the joint- 
stock company and the trust, that our work is not 
to abolish them, but to baptize them. 



Much has been written on the scope and method 
of political economy, that is, on the position of 
economic science among the other sciences, and on 
the logical procedure by which the conclusions of 
this science are to be reached. But though much 
has been written no agreement has been come to : 
a misfortune due principally to two causes. The 
first is the want of agreement on the meaning of 
words and the consequent misunderstandings which 
never could have arisen had there been a recognized 
philosophical vocabulary. With a good deal of 
trouble these misunderstandings can be tracked out 
and the disagreement removed ; and in fact several 
recent economists have been at pains to show that 
earlier economists did not mean all they seemed to 
say. Bot the second reason for disagreement is 
much graver than a mere misunderstanding, being 
nothing less than a fundamental divergence on the 
first principles of ethics. Explanation is useful 
. not indeed as a means <>f removing dis- 
•, but as a means <>f showing that con- 
trol bout particular prim iples and conclusions 


is fruitless when we are not agreed about general 
principles and the very premises of the argument. 

If asked the further question why there is this disagree- 
ment on the first principles of ethics, which has such an 
unfortunate bearing on economics, I answer that this grave 
and interesting problem belongs to the higher region of 
general ethics, not to the lower region of particular ethics, 
with one portion of which the present volume is concerned : 
and all that need be said here is that if we have made any- 
intelligent study of theology, there is nothing in this disagree- 
ment to surprise us. 

If we are agreed on the true philosophical view 
of the nature and destiny of man and of his surround- 
ings, we ought to have little difficulty in agreeing on 
the position of economics among the sciences. It 
is a part of moral philosophy or ethics, which, in the 
widest sense, is itself that part of philosophy which 
regards the moral order. This science of ethics 
must be subdivided if it is to become intelligible to 
us ; and of divisions the best seems to be as follows : 
to separate general ethics, looking at the nature of 
morality and at law and justice in general, from 
particular ethics, looking at the free actions of man 
in particular departments of life ; and then to divide 
particular ethics into two great sciences, economics, 
looking at the free actions of men as bound together 
for the purpose of getting their subsistence and 
preserving their race ; and politics, looking at the 
free action of men as bound together for defence 
against injustice and for the settlement of disputes. 

Several writers have used the term jus natures for particular 
ethics. Sometimes the term ethics is confined to general 
ethics, and scientia moralis is divided into two parts, ethica and 
jus natures. So by Father Joseph Rickaby in this series in 
his Moral Philosophy , where he neatly distinguishes the two 
parts by the logician's phrase, that the one attends to the 


comprehension, the other to the extension of the idea I ought. 
This volume deals with one portion of that extension, to 
which in that previous volume only a few pages could be 

Among modern writers, again, not a few use the terms 
social science, political science, or political philosophy , for particular 
ethics. But the terms we have adopted seem clearer. 

The phrase political economy is evidently unsuitable to 
express the science of economics, though it suited well enough 
the mercantile theory of those who invented it, and who 
dragged down economics from being a branch of moral 
science to be a mere art of how to enrich the Government ; 
and the dexterous management of the national resources and 
systems of finance, were styled political economy as distinct 
from the private economy of particular households. At 
present this unsuitable term is too strong to be dislodged ; 
but there are hopeful signs both in England and America 
that the term economics will soon displace it. 

The phrase national economy, very common in Germany 
(Nationalukonomie or Volksivirtschaftslehre), is also unsuitable 
for economic science, unless indeed we believe that truth like 
climate is relative and geographical, not the same on the 
Spree as on the Thames. 

Distinct from the question of words is the question 
whether any further subdivision of politics and economics is 
desirable. It is possible, for example, to subdivide politics 
into public lain or the constitution of the State, private hue or 
the manner in which the rights of the members of the State 
are determined and enforced, and international law or the 
relations of States to one another. Again, the revenue and 
expenditure of the Government can be detached from public 
law, and made a separate object of study under the title of 
the science of finance. Such divisions arc probably of great 
practical use; but whether economics can be broken up into 
any corresponding divisions, seems dubious ; and the German 
plan, of making a Beparate set enc t of administration {Verwalt' 
ungslehre), treating oi police and public functionaries, of the 
repp rion oi vice, of public health, of the treatment of the 
poor, and of education, seems a hotchpotch of materials that 

belong naturally, some to public law, some to private law, 

momics, and Is oi no practical convenienci 
I for those on med to reel daily the heels of a 

bureaucracy on ti 

It is necessary to distinguish economic science 
with great cl from the various arts sub- 


ordinate to it. In contradistinction to science, an 
art is a body of rules for reaching a particular end 
prescinding from morality, that is, leaving questions 
of morality on one side. And as the Greek word 
for art is Tkyyr\, we get the term technical, or what 
concerns matters of art, in. contradistinction to 
moral, or what concerns matters of right and wrong. 
Now in order to decide moral questions, that is, 
to apprehend Tightness or wrongness in particular 
cases, it is often needful to know technical matters. 
For example, it is a technical matter that cotton to 
be properly spun ought to be kept in a temperature 
not lower than 8o° Fahrenheit, and that the air be 
charged with a certain degree of moisture. In 
themselves these are mere details in the art of 
cotton-spinning ; but yet must be known if we are 
to judge of the rightness or wrongness of the actions 
of mill-owners and Governments touching the hours 
of work and the age of admission in cotton-spinning 
factories. It follows that many technical details 
and maxims have a place in economic science, 
according as they have a bearing on moral judg- 
ments. So, for example, in this volume in the 
chapters on the locality and dimensions of industry, 
on coinage, on commercial credit, and on taxation. 
But because we require them we must not forget 
that they are but subsidiary and preliminary. 

Pitfalls, (i) To make economics a mere art of getting rich, 
and consequently giving us conclusions that are only pro- 
visional, as being subject to approval or rejection by ethics. 
For although such an art is possible, it should be called, as 
Aristotle has taught us, by the name of chremastistics, and 
should not sail under false colours as economics, with the 


likelihood that we shall think so highly of our dollar-hunting 
maxims as to resent their being " modified " by ethics, nay, 
shall perhaps get rid of ethics altogether by declaring that our 
technical maxims are like physical laws which no preaching 
can alter. 

(2) To confuse moral science with art, and say that 
because political economy is a science, therefore it must only 
treat of phenomena and laws ; not of what ought to be, but 
onlv of what is : as though a science which confined itself 
strictly to phenomena in the strict sense of phenomena, was 
not a contradiction in terms, at least if a science is cognitio 
rerum in suis principiis ; and as though the moral order was not 
a body of truth as capable of being the object of a science as 
any other body of truth. No doubt we can distinguish 
practical sciences from speculative, according as the truths 
examined have or have not a direct bearing on the free 
actions of rational beings. But such activity, to be called by 
pre-eminence human action (npa^Ls or doing), is very different 
from human activity looked on simply as a means to a 
particular end, such as to make a table, win a battle, raise 
a crop, which is not to be called action or doing in the 
proper sense, but making or construction (ttoltjo-ls), and 
belongs to the arts, to the recta ratio factibilium, not to moral 
science. To confound them is a most unhappy confusion. 

In like manner certain portions of physical science 
are introduced into economics as necessary pre- 
liminaries to our forming ethical judgments. So, 
for example, in the chapters on the productive 
capacity of the earth and of man. Again, economic 
science presupposes the results that psychology gives 
on tin: emotional and intellectual character of man, 
and in consequence, aided by a careful study of 
history and statistics, can estimate various j 
Labilities of human action. So, for example, the 

probabilities of d< i consumption under certain 

aces, or again of market prices or mono- 
poly prices 111. udition upply ;iI1( ' It tli-- limits and ii/ of SUCb 

nomena i | ly th< on m I 


action, whether of individuals, of families, of asso- 
ciations, or of Governments ; and thus to make 
political economy merely a physical or merely a 
mental science, or again merely a mixed mental and 
physical science, is not much better than making 
it a mere art : it is a part of ethics, nothing more 
and nothing less. 

The disastrous separation of economics from ethics was 
to be expected with the decay of philosophy, the loss of the 
sense of the unity of science, and the corresponding separa- 
tion of political science from ethics, a separation begun by 
Thomasius at the end of the seventeenth century and com- 
pleted by Kant at the end of the eighteenth : and this, not 
simply against the teaching of Christianity, but against the 
best traditions of the human race. For in vain on the dull 
ears of these innovators sounded " ilia Platonis vera vox : 
omnem doctrinam harum ingenuarum et humanarum artium 
uno quodam societatis vinculo contineri." (Cicero, De Oratore, 
III. vi. 21.) Nor would they have listened had they been told 
that the philosophy from which the most enduring and 
numerous of all peoples had drawn during 2,000 years their 
mental nourishment, that of Confucius and Mencius, made 
politics and economics, like their Greek contemporaries, a 
portion of ethics. 

In a clear and able work recently published on The Scope 
and Method of Political Economy, by Mr. Keynes, the author by 
no means confuses ethics with an art ; and his distinction 
of normative and positive science corresponds well enough 
with the ancient distinction of scientia practica and scientia 
speculativa. But he urges that we ought to keep distinct 
the positive science of political economy, which looks at 
uniformities, from the ethics of political economy, which 
looks at ideals ; that the positive science is political economy 
properly so called ; that to pursue it independently of ethical 
inquiries is the right way, in order to keep calm and un- 
prejudiced, in order also to avoid treating the theorems of 
pure science as though they were maxims for practical 
guidance, and finally, in order to avoid multiplying and 
perpetuating sources of disagreement, by allowing ethics to 
intrude into economics. In consequence, he keeps distinct 
the economic from the moral or ethical point of view. 

Now the dispute is partly a matter of words and arrange- 
ment : whether we shall keep all the prolegomena, the 


technical details, the selected extracts from physical science 
and psychology, the examples from history and from statistics, 
the probabilities of human action that can be reckoned on — 
whether we shall keep all this in a volume by itself, and 
call it political economy ; and then put all our ethical 
judgments, all our praise and blame, in another volume 
called by some other name. Now this might be done, 
but would be very inconvenient, separating premises from 
conclusion, and breaking off at the very point of interest, 
when all the materials for judgment had been collected. 
We could hardly put up long with this inconvenience, 
as we see by the fact, that the great body of econo- 
mists who profess to have to do, as they say, with the 
indicative mood only, and not the imperative mood, cannot 
keep from trespassing again and again on the ethical field, 
as Senior complained, all the while doing it himself, as Mill 
and Roscher and Professor Walker have done, and last but 
not least, Professor Marshall, who in one place of his 
Economics preaches quite a sermon, and a sound one too, but 
still a sermon. And Mr. Keynes' fear of bias is not much of 
an argument in favour of the separation of economics from 
ethics ; for most economists have quite wit enough to know 
what practical results follow from their innocent-looking 
indicatives ; and open bias is better than veiled bias. 
Besides, if our ethical judgments are interwoven with our 
studies of phenomena, I think we are not more likely but 
less likely to interpret theorems as maxims. 

But then there is a deeper ground for the dispute. Mr. 
Keynes is only half emancipated from the belief in a body 
of science which is really only about imaginary men under 
inary circumstances. With such a science ethics has 
indeed nothing to do (except so far as declaring the wrong- 
fulness of waste of time). The very specimen given of a 

trine that belongs to "positive science," is a men- collec- 
tion oi •. Lthout corresponding realities, namely, " that 
under a system of thoroughgoing competition, normal value 
is determined by cost of production." in real life we 
shall look in vain for a system oi thoroughgoing competition, 
or for normal value, or even for cosl of produi distinct 
from tnd various costs of production. Hence Mr. 
. a large body <>i doctrine or collection of 
so-called economic laws, such as unhappily occupy so 1 
I of Professor Sidgwick's and Pi Mai hall's 
, for which h( »m ; am 
arly not the homo for them, ;■ an w building has 
to \x; run ii)) among the balls <<f science. Bui ii ;ill tl 

1 ;u t< d ftwaj , then 1 1 


plenty of room in ethics for the legitimate preliminaries of 
our moral judgments. And observe that precisely upon the 
principles settled in our general ethics depends our choice 
amid the innumerable phenomena that crowd around us ; 
mere facts being nothing, pertinent facts everything. But to 
know which are pertinent, the " merit a memorabilia quae sunt 
tamquam rerum lineamenta majora" (Leo XIII.), we must 
have previous knowledge to be our guide through the 
labyrinth of appearances. And this previous knowledge is a 
sound philosophy, in particular, a sound training in general 
ethics. Hence we can answer Mr. Keynes' final objection to 
making economics a part of ethics, that this is to invite need- 
less or premature controversy. On the contrary, much idle 
controversy about multitudes of conclusions is checked by 
the disputants being recalled to first principles : if they are 
agreed on these, they will probably soon be able to agree on 
the consequences ; and if not agreed on first principles, they 
will soon see that controversy is fruitless. 

It follows from the foregoing argument that the often- 
heard phrases, from the economic point of view, or on purely 
economic grounds, should be avoided as being sometimes quite 
wrong, sometimes misleading. If economic is opposed to 
moral or ethical, the phrase is quite wrong ; for the economic 
point of view is the ethical point of view ; and in most cases 
what the writer means to express, should be expressed by the 
word technical. If economic is opposed to political, then 
indeed the phrase is not wrong, but liable to make students 
imagine a hard and fast line between politics and economics 
which does not exist in reality. We separate them for the 
sake of learning and teaching, but they are intimately 
connected ; the social organism is not two but one ; and 
though in some discussions, for example, those on inter- 
national trade, on small holdings, or on public debts, we may 
distinguish the political from the economic arguments, we 
must not allow any pure political or pure economic point of 
view, inasmuch as every political argument is in part also 
economic, and every economic argument in part also political. 
Perhaps indeed this is too hard a saying, and men ought to 
be allowed a little indulgence in error. If so, let them build 
up to their heart's content a very wall of separation between 
economics and politics, on the one condition that they will be 
thoroughly submissive to the doctrine that both politics and 
economics are departments of ethics. 

In answering Mr. Keynes, who is the spokesman of the 
moderate party among the abstract or hypothetical economists, 
I have incidentally answered the opposing historical school of 
economists. Right in rejecting as useless new-fangled and 


imaginary laws of wages and population, pro